A candlestick chart is a graphing technique used to show changes in price over time. Each candle provides 4 points of information opening price, closing price, high, and low. Also known as “c
Key Takeaways:
• A candlestick chart is a method of showing historical prices of an asset (e.g. cryptocurrency), giving a good summary of the price’s behavior.
• It is extremely relevant in Bitcoin and cryptocurrency trading, as candlestick patterns can indicate bullish or bearish reversals.
• Considered a “leading” indicator and not “lagging,” one can get ahead of the trend by acting on leading candlestick patterns before the rest of the traders pile on.
What Are Candlesticks?
A candlestick chart is a method of showing prices — namely open, high, low and close — of an asset for a defined period. Candlestick charts are thought to have originated from Japanese rice traders in the 18th century. They are still one of the most popular ways of displaying prices of financial markets.
Note the difference between the “bull” candle (green) and “bear” candle (red). When a candle’s open price is lower than the close, the candle is said to be bullish, while the inverse is true.
A candlestick gives a good summary of how price behaved during the period being charted. All charting tools allow you to change the period of the candlestick chart, from one minute periods to one week or month per candle. This allows the trader to view market sentiment quickly (using colors) and get a good understanding of how prices behaved over a selected duration.
The colors selected are merely one option which the trader can tweak. Most charting platforms default to either green/red or white/black.
How Do Traders Use Candlesticks?
As candlesticks illustrate the movement of the asset during the defined period, it can visually indicate bullish or bearish sentiment, especially when candlesticks are viewed as a group. Traders call these candlestick patterns.
Candlestick charting is extremely relevant in Bitcoin and cryptocurrency trading as a whole. By learning how candlestick patterns can indicate bullish or bearish reversals, you can get ahead of the trend by acting on these leading indicators before the rest of the traders pile on!
As candlesticks utilize raw price data and updates as soon as a period is completed, candlestick patterns are said to be “leading” indicators and not “lagging.” This makes candlestick pattern recognition a must-have in your trading arsenal.