Read Crypto Candlesticks the Right Way, Build a Winning Trading Plan

Understanding cryptocurrency candlestick charts can help you make well-grounded trading decisions. At C-trade, a cryptocurrency derivatives exchange, we want every trader to succeed. So, we prepared a guide to assist you read candlesticks the right way before entering a trade.

Read Crypto Candlesticks the Right Way, Build a Winning Trading Plan

Understanding cryptocurrency candlestick charts can help you make well-grounded trading decisions. For instance, following the crypto candlestick patterns you can decide on whether to buy or sell a crypto asset. Cryptocurrency candlestick charts can help you determine the best time to enter a trade based on session-wise market sentiments. Learning the basics of candlesticks charts can aid you in planning a winning crypto trading strategy. At C-trade, a cryptocurrency derivatives exchange, we want every trader to succeed. So, we prepared a guide to assist you read candlesticks the right way before entering a trade.

What is a Candlestick Chart?

Cryptocurrencies are volatile assets characterized by positive and negative market movements within a short time frame. With cryptocurrency candlestick charts you can understand to what degree the price of a specific asset moved within a time period. Also worth noting is crypto markets remain open 24 hours a day unlike stock markets. So, the “open” and the “close” price represents the beginning and closing value of a crypto asset within a selected time window. Cryptocurrency exchanges will have a trading view with candlestick charts showing these price movements within a 5-minute slide, and you can select an overall time frame of 15 minutes, 1 hour, 4 hours and so on depending on your trading behavior. For instance, looking at crypto candlestick patterns within a shorter time period can help you make a better trading decision if you are a day trader.

Each crypto candlestick is made up the following price points and data sets:

Open - Records the first trading price of an asset within a specified time frame.

High - Records the highest trading price of the asset within a specified time frame.

Low - Records the lowest price an asset traded at within the specified time frame.

Close - Records the price at which the asset closed trading within the specified time frame.

Together these data form the OHLC values. These values represent the historic price of an asset and since history repeats itself, you can follow the body of a candlestick to determine when to buy or sell a crypto asset. For instance, you can use these values to distinguish between periods of high volatility and low volatility and enter a trade accordingly.

What do Cryptocurrency Candlestick Charts Tell Us?

It is important to understand the anatomy of a crypto candlestick chart and what each visual represents. By doing so you would be able to understand the history of an asset’s price movements in terms of identifying bullish crypto asset patterns and bearish patterns. Let’s suppose you are looking at Bitcoin’s price movements during the last week. By reading the crypto candlestick patterns you would be able to get insights into the market sentiments around Bitcoin.

You will get answers to when Bitcoin went through periods of highs and lows and for how long these patterns continued. Market sentiments involving any asset work like tides and if the market is bullish chances are it will stay that way for a while and the same applies to a bearish pattern. So if you find yourself at the head of a bullish pattern, a knowledge you can only gather from crypto candlesticks, you might want to buy a Bitcoin perpetual contract and sell it within the next few days for a profit as Bitcoin’s price is on the rise with ready buyers available.

A candlestick represents the length of a candle with a wick, also known as shadow. The length of the wick in relation to the body of the candle says a lot about the price trends of a particular crypto asset.

  1. A candle with a long upper shadow or wick usually represents a bearish trend, meaning that investors are more inclined on selling the asset. So, if you are looking to buy an asset, this is the time you may want to enter a trade as prices are going down. You can buy a futures contract, which is a cryptocurrency derivative instead of buying the underlying asset and profit from selling it as prices decline.
  2. A long lower shadow usually represents a bullish trend, which means that investors are interested in buying the asset thus driving the price up.
  3. A Doji candle is one with no body and indicates that the opening  and closing prices were the same. This could possibly mean a period of stagnation which may soon be followed by a reversal of the trend that preceded the Doji candle.

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Understanding Bearish and Bullish Crypto Price Patterns Through Candlesticks

Understanding the candlesticks in clusters is another major step to reading crypto candlesticks the right way. A cluster of candlesticks can together form a pattern to indicate bullish crypto patterns, bearing trends, price resistance and support lines and market reversals. The following are the market patterns that you would be able to derive from cryptocurrency candles.

Hammer Pattern

As the name suggests, this candle looks like a hammer with a long downward shadow. The candle represents a market reversal from bearish to bullish. You are likely to find this candle at the bottom of a cluster representing a bearish trend.

The hammer pattern essentially indicates that a crypto asset was initially going through a bearish market, but buyers came in at one point and resisted the price decline. From there on the value of the asset started picking up, a trend that is likely to continue for a while.

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Bullish Engulfing

If you observe a green candle beside a red candle and its position is way above the red candle, you are most likely looking at a bullish engulfing pattern. This pattern represents an upward price trend which managed to surpass the initial downward price trend. The bullish engulfing indicates weak supply and strong demand.

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Shooting star Bearish pattern

A shooting star bearish pattern is represented as a hammer candle in reverse, also known as the hanging man. It is preceded by a bullish candle indicating, again a market reversal, but this time from bullish to bearish. It means there are more sellers in the market than buyers and sellers would continue to take lower prices for the asset in the following sessions.

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Bearish Engulfing

Bearish engulfing is the exact opposite of a bullish engulfing pattern representing price reversal to the downside. If this pattern continues it means there are more sellers in the market than buyers and prices have been following a downward trend for a while.

Why Should you Understand crypto candlesticks Patterns?

Understanding crypto Candlestick charts is crucial to formulating a well-grounded crypto trading strategy. For instance, you can take trading decisions based on historic market data. You can get more insights into the resistance and support levels involving a crypto asset and what price effect they bore. You can view candlestick charts in conjunction with Trading view to draw out a higher level crypto trading strategy. Likewise, you can use technical indicators to improve your understanding of the market trends and improve price speculation. We would like to know how you use technical analysis and candlestick charts to refine your trading decisions. So, let us know in the comments section.

C-Trade is a cryptocurrency derivatives exchange, offering perpetual futures contracts of the most popular cryptocurrencies including Bitcoin and Ethereum with up to 150x leverage. Enjoy trading at low fees, a lightning fast high transaction speed and never lose out on a great trading opportunity.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. C-Trade, its affiliates, agents, directors, officers, or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability as to any loss arising from any investment based on the same.