Crypto trading candlesticks explained - how do you use them correctly?

Crypto trading candlesticks explained - how do you use them correctly?

In this article, we’ll be going over crypto trading candlesticks. Investors that learn to use these key chart metrics to their advantage can gain more opportunities for profit, and they can even use them to protect themselves from losses.

How do you read them though? We’ll be covering everything you need to know to read candlesticks and some patterns to look out for, but first, let’s talk about what a candlestick in cryptocurrency is and how it works.


What are crypto trading candlesticks?

Candlesticks are representative of a cryptocurrency’s trading activity for a set period of time. You could think of these as tinier slices of the overall chart. Normally candlesticks can be broken into segments of several hours or even just a few minutes, and they can give you a lot of insight into how buyers and sellers are truly feeling about that particular investment. Cryptocurrency traders analyze candlesticks in order to estimate which direct the price of an asset will be heading.


How do crypto candlesticks work?

Candlesticks have a wick and a body. The wick is the line, and the fat green or red portion is the body. Based on price movements, the candlestick will display trading activity. The body section indicates the opening and closing price during your specified time period. Candlesticks become bullish when they rise above the previous opening price. They become bearish if the opening price falls below the opening price.


How do you read cryptocurrency candlestick?

In order to read the candlesticks, you’ll need to understand some definitions first. Here’s what the information on the candlesticks means and how you can interpret it to help you to make better crypto trades.

Opening price - This is the price that was the first trade on the candlestick in question. The color of the candlestick will be green if the current price is trading above the opening price. It will be red if the current price is trending below what the opening price was.

High price - This is the highest traded cryptocurrency price for the candlestick that you are looking at. You can see this based on how big the wick is at the top of the candle. If there is no wick (the thin line), then the high price is the opening price.

Low price - This indicates the lowest trading price for the candle. It’s similar to the last entry, but the wick will be at the bottom instead. No wick means that the low price was the same as the opening price.

Closing price - The closing price is the last price of the crypto asset that was traded on the candlestick that you’re trying to read. Prices which have trended upward are green and those which are trending down are red. This will be in relation to whether the closing price is above or below the opening price of course.

Using the information above, it’s your job as a trader to identify patterns which may indicate that the price will continue in either direction. You can then buy or sell as needed to gain more coins.


How do you use them correctly?

In order to use candlesticks correctly, you should learn about the different types and patterns. While candlesticks can look similar to the untrained eye, they are very different and they display a lot of important information that traders can take advantage of. Let’s talk about cryptocurrency candlestick patterns and how you can learn to use them.


Trading candlestick types

There are a number of crypto candlestick types that you should be looking out for. Learning to identify these unique candlesticks can help you to make better trades as they allow you to gain insight into what’s going on in the market at that time.

The Doji - This candle is equal in length on both sides and is very thin. It indicates that the market is indecisive. There are several kinds of Doji candles which can signal reversals too.

The hammer - The hammer consists of a wick which is greater than two times the length of the body, and it looks something like, well a hammer. Hammers could indicate that a bottom is forming. Prices could be on the rise soon.

Shooting star - The opposite of the hammer, a shoot star appears can indicate that the bulls are losing control to the bears. Prices may fall here.


What is a cryptocurrency candlestick pattern?

Candlestick traders are looking to identify patterns which will make them money. A pattern is a series of price movements which could indicate that the price could go either up or down.

New traders should spend some time familiarizing themselves with profitable candlestick patterns in order to learn which patterns they should be looking out for. There are plenty of them out there, but it’s best to stick with basic patterns at first.


Which crypto candlestick pattern is most reliable?

One of the most profitable and reliable patterns is called the bullish engulfing pattern. Many traders look out for this pattern specifically, because it gives a strong indication that the price will be rallying soon.

They normally appear toward the bottom of an asset’s price range, and that makes them very profitable for traders. They are also one of the easier candlestick patterns to identify, making them a popular choice for those who are new to crypto trading.


How do you practice trading with candlesticks?

In the beginning, your skills as a cryptocurrency trader will leave much to be desired. If you trade using real money in this phase, then you could end up learning some very costly lessons. However, if you’d prefer to learn to trade with candlesticks without any risk, then try giving Bitsgap’s demo features a try!

Using our platform you can see how these candlesticks function in real time, and you can create a practice trading account that will allow you to test yourself without sacrificing any real money. You can practice with this as long as you want, and then when you think your skills are up to par, you can swap over to using real money to trades!