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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.

Candlestick patterns

Sometimes a single candle can tell you a story in itself (such as Doji candlesticks, explained below). 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.

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 within Cryptowatch. 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.

Further analysis and trading styles

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