What Are Candlesticks Graphs And How To Use Them
Candlesticks, in this instance, are the specialized charts that are used to show price, market cap and volume for certain cryptocurrencies. You may have seen them on popular crypto sites such as Coinbase and Binance. The candlestick graphs are a bit more advanced than usual line graphs as they give more in depth information and, unfortunately, can be a little trickier to read, especially for newbies. So in this article, we’ll explain the candlestick basics to give you a better grasp on them.
How do you read the graph?
At varying points on the graph, you’ll notice a candle-shaped rectangle with ‘wicks’ coming out on either end. The candlestick has 4 important parts to take note of which include:
- Upper wick/ shadow
- Lower wick/ shadow
- Open point
- Closing point
The upper wick indicates the highest price of the crypto during that time period and the lower wick indicates the lowest price during that time period. The top and bottom of the candle indicates the opening and closing prices. But they are at different points, depending if it was a down trend or uptrend during that time frame. You’ll also notice that the candles are different colours too. The green candles mean that the crypto was on an uptrend, which in industry terms can be described as ‘bullish’. The red candles are the points where there are downtrends happening, or ‘bearish’ activity. With this info in mind, you should now be able to look at a candlestick graph and easily determine whether the market was trading higher or lower for a specified time frame.
There are other forms of candlesticks, although they are less common. There are wickless candles that just look like a straight bar. If it’s green it’s associated with the fact that the market is a rising in power, if it’s red, we can assume that it’s falling in power. If there is a green candle with just an upper wick, it’s safe to say that it’s a weakening rising power, and with just a bottom wick- an increasing rising power. A red candlestick with these same attributes is a whole different story. A red candlestick with only an upper wick can be seen as an increasing falling power, and if it has a lower wick- a weakening falling power.
So, how to trade based on knowledge of candlestick graphs?
Well, as previously mentioned, candlesticks give you wealth of information at a glance. So all you need to do is use this information to make informed decisions when trading cryptos, easy right? Well, maybe not at first, but if you follow the following 3 guidelines you should be off to a good start:
- Always analyse data for a time period of at least 4 hours before making any decisions.
- Never analyse a current candlestick. Wait for it to complete.
- Keep probability in mind, as you should for any form of trading.
This basic information provided in this article is definitely a good starting point, but remember that there are dozens of candlestick strategies out there you to make good use of!