How To Read Crypto Candlestick Charts

A crypto candlestick chart is a type of technical analysis tool that helps traders visualize the price action of a given asset over time. Here, we explain how it can help your crypto trading strategy.

New to the world of crypto trading? It can be pretty daunting if you’re just getting started. But you’ll be pleased to know there are lots of tools to help you understand the crypto market before you get stuck in, from crypto trading guides to the famous fear and greed Index. 

One of the best ways to track the market is using a crypto candlestick chart. The insight this chart provides can be valuable in any market – and crypto is no exception. But with so much data packed in, these charts can be intimidating. In this article, we deep dive into the crypto candlestick chart, so you can use it for your own crypto trading strategy.

The History of Candlestick Charts

Candle charts (often referred to as candlestick charts) have a rich history dating back to the 18th century. The origin of the candle chart is generally credited to a Japanese rice trader named Munehisa Homma.

Homma discovered that by plotting the price of rice over time, he could identify patterns that might suggest the direction of future price movements. He used a system of bars to represent the price movement over a given time period, with the length of the bar indicating the price range over that period. 

Traders developed the technique further by adding their interpretations of chart patterns. By the 1990s, candlestick charts became popular with technical analysts and traders internationally. Today, with the availability of real-time data online, using candlestick charts provide more accurate and timely information than ever before.

As such, all sorts of markets use these types of charts, which leads us to crypto.

What Is a Crypto Candlestick Chart?

A crypto candlestick chart is a visual representation of trading activity for a given crypto asset.

Crypto candlestick charts offer comprehensive information. Such as the asset’s opening and closing price, highest and lowest price, and the price “movement” of an asset — both in long and short-term time windows. 

Each chart is presented as a graph: the vertical axis of that graph shows the price, while the horizontal axis shows the time period. Automated crypto trading tools can analyze vast amounts of trading data and generate candlestick charts in real-time, allowing traders to quickly and easily identify trends and patterns in the market.

Let’s go a little deeper now, explaining the various data elements of a candlestick chart, and how to use them for crypto trading.

How to Read A Crypto Candlestick Chart

Candlestick Real Body

Let’s start with the candlesticks themselves. Each chart contains many distinctive green or red bars, and these are known as the candles or real bodies. Each one represents a specified time period, such as five minutes, an hour or a day.

The first thing you should do is to understand the time period represented by each of those candles. If you’re a day trader, for example, looking to make a profit within the day, candlestick charts showing price changes over minutes or hours will be more valuable to you than one tracking price movements by increments of a week.

Beyond this, the real body provides some crucial information.  The top and bottom of each candle denotes the asset’s opening and closing price, within the time frame.

For example, Let’s say we are looking at a candle that covers the hour from 9:00 am to 10:00 am, and the opening price is $100 while the closing price is $110. The real body of that candle would represent the difference of $10. Meanwhile, a candle that represented an opening and closing difference of $50 would have a longer real body. The length of each candle contains key information. For example, taller candlesticks represent a greater difference between opening and closing prices, while shorter ones represent a smaller price move over the same period.

Candlestick Colour

You might be wondering how to know which end of each candle represents the opening price, and which one the closing price. In other words, whether the price action is bullish or bearish. This crucial detail is determined by the colour of the candle.

Put simply, if the price of the asset increased in the allotted time frame, the candle will be green (or occasionally white). In this case, the bottom of the body is the opening price, and the top is the closing price. This is known as a bullish or green candle. On the other hand, a red (or occasionally black) candle represents a price decrease over the time period. This is also known as a bearish candle, in which the top of the body is the opening price, and the bottom of the body the closing price. A bearish candlestick indicates selling pressure during the time increment.

The Wick

Also known as the tail, or even the shadow, the thin lines above and below the body of the candlestick represent the highest and lowest prices reached during the given time period. Although a crypto asset might have opened at $100 and closed at $120, these figures may not represent the full trading range for the period. For example, the asset’s price could have risen to a maximum of $150 and a minimum of $80 in that same period. So the wick gives a fuller picture of the trading activity of the asset.

Now that you’re familiar with the features of candlestick charts, what about how to read their patterns?

Important Crypto Candlestick Patterns Explained

You might think all market activity is unique and random, but there are certain patterns that recur over time. These can provide deeper insight into activity and trends in the market, and enable traders to speculate about what might come next.

Let’s dive into some of the most useful candlestick chart patterns to know.

Bearish and Bullish Engulfing Patterns

The bearish engulfing pattern is a two-candles pattern that shows a momentary transition from buyers being in control to sellers being in control.  The first candle is a bullish candle (green) indicating a price increase over the first period; the second is a bearish candle (red) indicating a significant price decrease. Importantly, the second candle is longer than the first, “engulfing” the previous candle’s body. Where a bullish candle (an uptrend in price) is followed by a bearish candle (a subsequent downtrend below even the previous period’s opening price), it signals that control of the market for that asset has passed from the buyers to the sellers, at least momentarily.

The opposite of this is the bullish engulfing pattern. As you could imagine, this pattern signals a possible trend reversal from bearish to bullish. The first candlestick is a bearish candle, followed by a larger bullish candlestick that “engulfs” the previous candle’s body. This pattern suggests a change in market direction and could signal a further increase in prices.

Bearish Evening Star and Bullish Morning Star

The bearish evening star is a three-candlestick pattern. It signals a possible trend reversal from bullish to bearish. The first candlestick is a long green bullish candle, followed by a small red or green candle that gaps up, indicating indecision. The third candlestick is a long red bearish candle that closes below the midpoint of the first candlestick’s body. This way, the pattern is formed when there is a sharp price increase, followed by a consolidation period, and then a sharp decline. Typically found at the top of an uptrend, it suggests that the bears have taken charge. Potentially leading to a further price decline.

Conversely, the bullish evening star shows a possible trend reversal from bearish to bullish. This pattern forms when a sharp drop in price is followed by a consolidation period and then a sharp incline. Put simply, it suggests the price may start to increase.

Bearish and Bullish Harami

The bearish harami is a two-candlestick pattern. It signals a possible trend reversal from bullish to bearish. The first candlestick is a long green bullish candle, followed by a small red or green candle that is completely engulfed by the body of the first candlestick. This pattern suggests that the bears have taken hold of the market and could cause prices to fall further. A powerful reversal signal, some traders use these opportunities to enter short positions in a down-trending market.

On the other hand, the bullish harami signals a possible trend reversal from bearish to bullish. The first candlestick is a long red bearish candle, followed by a small green or red candle that is completely engulfed by the body of the first candlestick. This signals the end of a downtrend and the beginning of an uptrend. It suggests that the bulls are here to stay, and the market may see higher prices.

Dark Cloud and Piercing Line Patterns

The dark cloud pattern signals a possible trend reversal from bullish to bearish. The first candlestick is a long green bullish candle. The next candle is a red bearish one which opens above the high and closes below the midpoint of the previous candlestick’s body. The pattern gets its name from how the red candlestick “clouds” the gains made by its green counterpart. Occurring after an uptrend, this pattern suggests a potential trend reversal that could lead asset prices to continue declining.

The piercing line pattern signals a possible trend reversal from bearish to bullish. The first candlestick is a long red bearish candle. It’s followed by a bullish green candle that opens below the previous candle’s low and closes above the midpoint of the first candlestick’s body. This pattern suggests that the bulls might be in charge of the market, hence leading to more drawdown prices. The piercing line pattern is the direct opposite of the dark cloud pattern, despite its unique name.

Crypto Candlestick Charts – Where to Find Them

There are several online platforms and exchanges where you can find a crypto candlestick chart. Here are some popular options:

TradingView – one of the most widely used charting platforms, TradingView provides candlestick charts for various cryptocurrencies. You can access real-time charts and technical analysis tools to analyze price movements.

Crypto Exchanges – Trading platforms like Coinbase and Binance also provide charts for various cryptocurrencies. You can access charts for different timeframes, view trading volume data, and analyze different crypto candlestick patterns. 

Data Aggregators – sites like CoinMarketCap and CryptoCompare provide cryptocurrency market data, including candlestick charts, fear and greed index, and more for various cryptocurrencies. With such data aggregator sites, you can access charts for different timeframes as well as view other trading data.

It’s worth noting that different platforms may offer different charting tools and features, so choosing one that fits your needs and preferences is important.

Beyond the Candle Chart in Crypto: Security Essentials

Understanding crypto candlestick charts takes some time, but the effort is well worth it for crypto traders who want to make informed decisions about buying, selling, or holding an asset. Whether you are using your crypto for leverage trading, by mastering candlestick charts, traders can better understand market trends and improve their overall trading strategies.

One thing remains unique to trading crypto, however: it doesn’t matter how good your market analysis is if your crypto wallet is not secure to begin with. Hardware wallets secure your crypto private key in an environment that is completely isolated from your internet connection. This means you can trade knowing the private keys to your assets remain that way—private. So, before you start your journey with complex trading strategies, crypto regulation updates or maybe even AI crypto trading bots, make sure you invest in a hardware wallet – an essential part of your trading kit.