As a trader, being able to read a candlestick chart is one of the most valuable skills you can have. Candlestick patterns are widely used to represent trading prices in the crypto market. Whether you’re doing long-term investments or day trading, learning to read these charts is invaluable.
What is a Japanese Candlestick Chart?
The Japanese candlestick chart allows for technical analysis and gives great insight into market sentiment. It displays the high, low, open, and close prices of a specific asset over a set period of time. The candlestick chart originated in Japan in the 1700s and was used by Japanese rice traders to track market prices of rice. Now, it’s used in financial markets and has been adopted by crypto traders in recent years.
Understanding a Candlestick Chart
Candlestick charts can be overwhelming, especially when they present a large amount of information. Here are some key aspects of a candlestick chart and how to understand them.
Colour of the candlestick
The body of each chart will often be colored in green or red. Red means the price movement was negative, and green means that the overall price movement during that period was positive.
Each candlestick represents a specific period of time. The default setting for candles is usually one day, but there are lots of different time intervals that can be used. Lower time frame intervals can be effective for day trading, and higher intervals for long-term strategies. Some traders even use a combination of different timeframes to get the best of both worlds
Open and close
The body of a candlestick chart gives you information about the opening and closing prices of an asset for that specific time interval. For a green chart, the lower edge of the body indicates the price the asset opened at, and the upper edge is the closing price. For red charts, the upper edge represents the opening price, and the lower edge indicates the closing price.
High and low
The wick of a candlestick shows the highest and lowest prices of an asset traded during a specific time interval. The top of the wick represents the highest price traded, and the bottom is the lowest.
How to Draw a Candlestick Chart
There are many programs for drawing charts, but the best is Trading View as it has commonly needed tools such as The Trend Line Tool to connect candlesticks to make patterns. The horizontal Ray tool for marking support levels, resistance levels, and more.
Correctly learning how to read a candlestick chart is one of the most essential skills of every successful trader. This information is important for those in Crypto, and to learn more you can look to the Swyftx blog, which covers even more, including basic patterns and provides illustrations to make everything easier to understand.
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