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How to read a candlestick chart

Price charts provide the basis for Technical Analysis — learning to read a candlestick chart is a great early step to trading cryptocurrency.

The default chart type on Cryptowatch is the Japanese candlestick chart, a favorite among traders everywhere. Learning to read candlestick charts is one of the first big steps you will take as a new trader — whether you trade cryptocurrency, or take part in traditional markets like stocks or forex trading.

Candlestick charts derive their name from the visual similarity each bar has to an actual candle, with its wide body and thinner wick (or shadow). Candlestick charts convey not only the price information of a market, but also the harder-to-quantify emotional sentiment of the market’s participants.

Kraken BTC/USD, May-July 2020, ID (1 Day) candles

The price chart in the image above shows the change in price of BTC/USD (Bitcoin valued in US dollars) from May, 2020 (left) to July, 2020 (right). This is a “daily” chart — each of the vertical bars you see is a single candlestick representing one day in the market.

Candlestick charts are simple graphs composed of an X and Y axis.

The horizontal, X-axis represents TIME:

  • The rightmost candle is the current day/period

  • Each candle to the left of that candle represents one prior day/period

The vertical, Y-axis represents PRICE:

  • Higher prices are up

  • Lower prices are down

The period of time that each candle represents is selectable, ranging from 1M (1 minute) to 1W (1 week) on Cryptowatch. The time selector is in the top-left of the price chart, next to the exchange and market pair. In the image above you can see it to the right of “Kraken BTC/USD”.

Follow this link to learn more about customizing the price chart:

How to read a single candlestick

Candlestick charts are composed of many individual candlesticks (or candles). Each candle represents a single period of time, such as a minute, hour or day. The shape of the candle conveys four different prices: the Open price, High price, Low Price, and Close price. Charts that represent this information, including candlestick charts, are called OHLC charts (Open, High, Low, Close).

Candlestick charts resemble Bar Charts, a common predecessor in western markets. Candlestick charts are usually preferred because it’s easier to see what’s happening in the market, due to their increased width. You can change your charts from Candlestick to Bar Charts in the Chart Style menu, if you like.

Price

Description

Open

The price of the asset at the absolute beginning of the period.

High

The highest price the asset traded at during the period.

Low

The lowest price the asset traded at during the period.

Close

The price of the asset at the absolute end of the period.

Bullish, or “up” candles are green by default. Bearish, or “down” candles are red.

Individual candles tell the story of the market using their color and shape.

  • Candles are colored green if their Close price is higher than the Open price.

  • If the Close price is lower than the open price, the candle is colored red.*

The shape of the candlestick is broken into two parts: the body and the wick (or shadow).

Reading the body:

  • The top and bottom of the thicker body portion represent the Open and Close prices

  • For bullish (green, up) candlesticks, the Close price is above the Open price

  • For bearish (red, down) candlesticks, the Open price is above the Close price

Reading the wick/shadow:

  • The thinner wicks represent the High and Low prices.

  • The High price is at the top of the upper wick

  • The Low price is at the bottom of the lower wick

Green and red are the default up- and down-colors on Cryptowatch (and many other charting platforms). You can adjust these colors by choosing or creating a different theme.

You can tell yourself a short story about the market by reading a single candle. One example could be: “The market opened at X, and closed at Y. During that time, it sold for as low as A and as high as B”.

Sometimes, candles lack a top wick, bottom wick, or both. If the Low wick is missing on a Bullish (green, up) candle, for example, then we know that the price never fell below the Open price during that period of time. In other words, the Low price was equal to the Open price.

You can quickly see a candle’s OHLC information by hovering the crosshair tool (default tool, hotkey J) over any candlestick on Cryptowatch. OHLC info overlays the top-left section of the candlestick chart.

See the highlighted candle’s OHLC information above the candlesticks.

Doji Candlesticks

A Doji is a candlestick where the Open and Close prices during the candle’s period are the same or virtually the same. Doji candlesticks viewed on their own are usually neutral indicators for future price action — they represent a period of indecision in the market where neither bulls nor bears could successfully move the price of the traded asset. In Japanese, “doji” translates to “blunder” or “clumsy”, perhaps referring to the inability of either bulls or bears to move the price in a significant way.

Doji candles on their own are neither bullish or bearish, and give no strong indication for either trend continuation or reversal. The candles before and after the doji give it context, forming important, multi-candle patterns that may yield stronger indications for future price action. When you are analyzing charts, candlestick patterns should be considered alongside a confluence of other indications.

Doji candlesticks are often identified as one of the 5 types above.

A doji candlestick on its own is not a very strong indicator. Doji represent market indecision and must be included in the context of other candlesticks and analysis indications.

Doji Type

Identification

Potential indications

Doji Star

Small wicks/shadows extending from the doji “body”, which is centered in the candlestick.

Unreliable in indicating either a continuation or reversal of the current trend on its own. Traders will often wait for the next candle to close to either confirm or deny their prediction. Like all doji, its indication is neutral without the context of surrounding candles.

Long-Legged Doji

Long wicks/shadows extending from a centered doji body.

The price moved dramatically above and below the Open price before closing at an equal or virtually equal price. Viewed on its own, a Long-legged Doji is unreliable in indicating either a continuation or reversal of the current trend.

Dragonfly Doji

A long lower wick/shadow extending from a doji body. The Open, Close and High prices are equal or virtually equal.

Resembles an uppercase “T”.

Bears were able to push the price below the Open price, followed by an equal reaction by the bulls. May be considered a reversal signal if formed at the bottom of a down-trend. Be aware that a single doji candlestick on its own cannot indicate either the end or continuation of a trend.

Tombstone Doji

A long upper wick/shadow extending from a doji body. The Open, Close and Low prices are equal or virtually equal.

Bulls were able to push the price above the Open price, followed by an equal reaction by bears. May be considered a reversal signal if formed at the top of an up-trend. Be aware that a single doji candlestick on its own cannot indicate either the end or continuation of a trend.

Four Price Doji

A horizontal line with no wick/shadow. All four prices — Open, High, Low & Close — are equal or virtually equal.

Found in low-activity markets on low time periods (eg. 1 minute (1M) candles) Often indicates a period of very low or non-existent trading activity. Confirm low or non-existent trading activity with a volume indicator.

Marubozu Candlesticks

The name “Marubozu” translates to “bald” or “shaved head” in Japanese, referring to the lack of any wick/shadow in these candlesticks. They represent periods where one side of the market (either bulls or bears) were in control from open to close.

Like doji, marubozu are not reliable indicators on their own and are best viewed in the context of surrounding candles, nearby support and resistance, or indications from other analysis tools (like a moving average line). Depending on other market indications, a marubozu candlestick can indicate either a coming reversal or the continuation of the current trend. Be wary of very small marubozu — they usually indicate low trading activity during the time in question, undermining any indication the marubozu may have been worth.

Bullish and Bearish Marubozu are candles with a complete body and no wick/shadow.

Marubozu, despite indicating either a strong bullish or bearish direction during a single candlestick period, are not reliable predictors for future price action on their own. Always use a confluence (ie. merging, coming together) of indications when predicting trends.

Type

Description

Possible indications

Bullish Marubozu

A.k.a. White Marubozu.

An up-candle with a full body and no wick/shadow.

Buyers controlled the market from open to close, making this candle a bullish indication.

If a bullish marubozu forms at the end of a down-trend, it may signal a reversal.

If a bullish marubozu forms at the end of an up-trend, it may signal a continuation.

The likelihood of either a reversal or continuation is not guaranteed by the bullish marubozu alone.

Bearish Marubozu

A.k.a. Black Marubozu.

A down-candle with a full body and no wick/shadow.

Sellers controlled the market from open to close, making this candle a bearish indication.

If a bearish marubozu forms at the end of a down-trend, it may signal a continuation.

If a bearish marubozu forms at the end of an up-trend, it may signal a reversal.

The likelihood of either a reversal or continuation is not guaranteed by the bullish marubozu alone.

How to find the current price of an asset

There are really two prices you might refer to when you ask this:

  • The last price Bitcoin traded for (a.k.a. the last traded price)

  • The price you would pay/demand if you bought/sold immediately (market price)

To find the last traded price using the price chart, hover over the last (rightmost) candle on the chart and check the Close price.

We can find the last price easily using the price chart, or by glancing at the order book. To find the price in the second bullet, check out this article:

You can also check the middle number in the order book (to the right in the following image), the vertical y-axis, and your watchlist bar (if you have this market favourited) to find the last traded price:

The last traded price appears in a multitude of places on the Charts page alone.

What trend is the market in?

Finding the overall market trend doesn’t require any analysis tools, though they can certainly make it easier. Try using a Moving Average or Zig Zag — these tools (among others) indicate market direction, and you can learn how to use them right from the Analysis menu.

There are possible answers to this question:

  • The market is Bullish (trending up)

  • The market is Bearish (trending down)

  • The market is trend-less (no trend)

When a market is trend-less, it may indicate a number of possibilities. For example, the market may have entered a period of indecision or price consolidation.

Did you know? Bull and bear markets are named for the way these animals attack — bulls buck their horns up, and bears swipe their claws down.

To find the current long-term trend using the price chart, first set your chart to a higher candlestick interval. Weekly candles are great when viewing a market over many months or years. The 3-day (3D) and daily (1D) candles work well for spotting trends that last days or weeks.

If you’re looking for the intraday trend, smaller intervals like the hourly (1H) or 2-hour (2H) candles may be better.

Kraken BTC/USD, March to July, 1D (daily) candles

Most would agree that Bitcoin is bullish (going up) in the chart above. However, eyeballing charts alone is too subjective. A better method for determining the trend with just a price chart is checking the highs and lows.

Trend

Highs & Lows

Bullish (up)

Higher highs and higher lows

Bearish (down)

Lower highs and lower lows

No trend (sideways)

Highs and lows are nearly equal

Looking at the same chart, we can actually identify multiple trends taking place within the larger up-trend:

Kraken BTC/USD, 1D candles. Identify trends by identifying the highs and lows.

By the way, the drawings above are all done with Cryptowatch's drawing tools. Check out Drawing on Charts to learn more.

When we take a closer look at the candlestick chart we can find times where the price was rising, falling, and moving sideways (in this case, consolidating). Then, within those trends, there are changes in price direction that span even smaller periods.

Determining the end of a trend usually requires a closer look and candlestick patterns, as well as the use of some analysis tools. The Simple Moving Average (SMA) and Exponential Moving Average (EMA) overlays signal a change in trend when at crossover points. The ZigZag tool plots simple trend-lines over the price chart, showing the overall price direction during a move.

The chart below is overlaid with the ZigZag and EMA tools. The green line is a 21-period EMA (on this chart, this means it calculates 21 2-hour (2H) periods) and the blue line is a 100-period EMA. The ZigZag tool plots a trend-line from the low and high prices of a significant move.

The ZigZag (white lines) display trend-lines. The circles indicate EMA line crosses.

How to read candlestick patterns

Sometimes a single candle can tell you a story in itself (such as Doji candlesticks). You can recite a more complex story by comparing neighboring candlesticks. When you look beyond a single candlestick, you’re beginning to read candlestick patterns — expressions of the market that traders use to identify sentiment and make predictions.

Some patterns require you compare only a few candles — usually 2 or 3. Large-scale patterns emerge when you zoom out of the chart and look at more of the market’s history.

Here’s an example of a well-known trend-reversal pattern called an evening star, highlighted by a white box in the center of the chart:

The evening star pattern often signals the end of an up/bullish trend.

The evening star is a 3-candle pattern:

  1. The first candle must be a bullish (up/green) candle with more body than wick. A higher body-to-wick ratio signals a stronger decision in price.

  2. The second candle must have a very small body-to-wick ratio. Candles with equal or nearly-equal Open and Close prices are called Doji, and represent indecision. Though a Doji appears in the pattern above, it isn’t necessary to complete the pattern. Any candle representing indecision (the body size is 60% or less of the full candle height) will do.

  3. The third candle is a bearish (down/red) candle, again with more body than wick, representing a new decision in trend direction.

When you read these candles on a price chart, you might say to yourself:

  1. “Buyers were in control of the market for the first period.”

  2. “During the second period, no decision could be made on the trend.”

  3. “By the end of the third period, sellers took control of the market.”

Looking at the candles surrounding the pattern in the middle, we can see that this pattern formed the crux of two opposing trends. The market was trending upward before the evening star, the pattern occurred, then the market trended downward for six 6-hour (6H) periods.

Reversal candlestick patterns

Many (but not all) traders use candlestick patterns in their analysis. Candlestick patterns work on the assumption that history will always repeat itself — it certainly can, but it doesn't happen 100% of the time. If you use candlestick patterns in your analysis, make sure to incorporate signals from other sources as well. The more "confirmations" you have of your analysis, the better.

Historically, the emergence of certain candlestick patterns have signalled that an asset's price trend is about to reverse — reversal patterns are often relied upon by traders because they may signal an opportunity to enter either a short or long position.

Bullish = increase in price. Bulls are traders who are sentimentally “long” on the asset.

Bearish = decrease in price. Bears are traders who are sentimentally “short” on the asset.

Keep in mind:

  • Reversal signals are strongest when they occur at a support or resistance level

  • Candlestick patterns often lose their signal potency within 5 bars of their position

  • Candlestick patterns only indicate signals for same-period charts (eg. 1 hour, 1 day, 1 week)

The following section lists bullish reversal candlestick patterns followed by their bearish reversal counterparts. Bullish reversal patterns indicate the trend may change from bearish to bullish. Bearish reversal patterns indicate the opposite: that the trend may change from bullish to bearish.

Hammer & Hanging Man

The Hammer and Hanging Man patterns are essentially the same pattern, but form differently depending on the current market trend. The Hammer pattern forms at the bottom of a down-trend, and the Hanging man forms at the top of an up-trend. They are both 3-bar patterns where the middle bar resembles a hammer. The hammer is confirmed when the next candle meets or beats the first candle's "neckline".

Hammer (bullish reversal)

  • The hammer is a three-bar pattern that signals a potential bullish reversal at the bottom of a down trend.

  • The middle candle resembles an actual hammer, featuring a small body at the top of the candle and a long wick below it. This signals aggressive buying activity during that period.

  • The hammer is confirmed using the candles immediately before and after it. The previous candle gives the pattern its “neckline” — the top of the candles body, usually the its high or open price — which the candle following the hammer must meet or beat.

  • The hammer candle in both the Hammer or Hanging Man patterns can be either bullish or bearish.

Hanging Man (bearish reversal)

  • The hanging man is a three-bar pattern that signals a potential bearish reversal at the top of an up trend.

  • The lower wick of the center candle is at least 2x as long as its body — this signals aggressive seller activity during the period.

  • This signal is confirmed when the candle immediately after the hanging man candle is bearish, and reaches or extends beyond the “neckline” of the candle previous to the hanging man.

  • The neckline is the bottom of the first candle's body — either the open or low price.

  • The hammer candle in both the Hammer or Hanging Man patterns can be either bullish or bearish.

Morning Star & Evening Star

The Morning Star and Evening Star are opposite patterns. The Morning Star appears in an down-trend and is a bullish reversal signal. The Evening star appears in an up-trend is a bearish reversal signal. They are both 3-bar patterns where two decision candles (candles where at least 60% of its height is body) surround an indecision candle (candles with longer wicks/shadows than bodies).

Morning Star (bullish reversal)

  • The morning star pattern is a three-bar pattern of a bearish “decision” candle, at least one “indecision” candle, then a bullish decision candle. Over 60% of a candle’s height must be its body (range from open to close) to label it a decision candle.

  • The "star" is a small-bodied candle or doji that opens at or below the close of the previous candle. The star can be either bullish or bearish.

  • Sometimes, multiple indecision candles may appear between the fuller-bodied candles that surround them.

Evening Star (bearish reversal)

  • The evening-star pattern is a three-bar pattern of a bullish “decision” candle, at least one “indecision” candle, then a bearish decision candle. Over 60% of a candle’s height must be its body (range from open to close) to label it a decision candle.

  • The “star” is a small-bodied candle or doji that opens at or above the close of the previous candle. The star can be either bullish or bearish.

  • Sometimes, multiple indecision candles may appear between the fuller-bodied candles that surround them.

Bullish Engulfing & Bearish Engulfing

Bullish Engulfing and Bearish Engulfing are opposite patterns. Each are only two bars long and form differently depending on the current market trend.

Bullish engulfing patterns appear at the bottom of a down-trend. They consist of a bearish candle followed by a much larger bullish candle that spans the first candle's entire body. Bearish engulfing patterns are the opposite: appearing at the top of an up-trend, they feature a bullish candle followed by a larger bearish candle that spans the first candle's entire body.

Bullish Engulfing (bullish reversal)

  • The bullish engulfing signal is a two-bar pattern where the second, bullish candle completely covers the span of the first, bearish candle’s body.

  • This signal indicates more market activity, with sentiment favoring the bulls.

Bearish Engulfing (bearish reversal)

  • The bearish engulfing signal is a two-bar pattern where the second, bearish candle completely covers the span of the first, bullish candle’s body.

  • This signal indicates more market activity, with sentiment favoring the bears.

Piercing Line & Dark Cloud Cover

Piercing Line & Dark Cloud Cover are similar to the engulfing patterns. Instead of "engulfing" the first candle, however, the second candle closes at least halfway up (Piercing Line) or halfway down (Dark Cloud Cover) the body of the first candle.

Piercing Line (bullish reversal)

  • The piercing line signal is a two-bar pattern where a second, bullish candle occurs immediately after a long, full-bodied bearish candle. The bullish candle opens at the same level (or lower) as the bearish candle’s close and must close at least halfway up the bearish candle’s range.

  • The strength of this reversal signal is usually tied to the height of the second candle in relation to the first

Dark Cloud Cover (bearish reversal)

  • The dark cloud cover signal is a two-bar pattern where a second, bearish candle occurs immediately after a long, full-bodied bullish candle.

  • The bearish candle opens higher than the bearish candle and must close at least halfway down the bullish candle’s range.

  • The strength of this reversal signal is usually tied to the height of the second candle in relation to the first.

Tweezer Bottom & Tweezer Top

The tweezer patterns are visually distinctive — they each consist of two candlesticks with long wicks with a shared bottom, appearing at either the top (Tweezer Top) or bottom (Tweezer Bottom) of a trend. The long wicks give these patterns their resemblance to a pair of tweezers. The shared tops/bottoms, especially when matching a known level of support or resistance, signal that traders are negating the direction of the current trend.

Tweezer Bottom (bullish reversal)

  • The tweezer bottom is a two-bar pattern where both candles share a low that is lower than the bearish candle’s close and the bullish candle’s open.

  • This signal is similar to the Piercing Line, but is distinguished by its long, bottom wicks with a shared low.

Tweezer Top (bearish reversal)

  • The tweezer top is a two-bar pattern where both candles share a high that is higher than the first, bullish candle’s close and the second, bearish candle’s open.

  • This signal is similar to the Dark Cloud Cover, but is distinguished by its long, top-wicks with a shared high.

Further analysis and trading styles

If you’re interested in learning more about trading and analyzing charts, check out the following links: