Candles… candles everywhere. If you’re anything like most people, your eyes glaze over a bit when you see those crypto charts tracking the price of Bitcoin, Ethereum or any other digital coin that’s crossed your radar screen. It’s nice to see most of those coins going up over time; other than that, how is one supposed to interpret all these weird graphs?
It’s actually not as weird as it looks. If you made it through math class in elementary school, you should be able to read those crypto charts; combine that with some basic investing strategy, and you’ll be a clear-eyed crypto boss in no time.
What Are These Candles For?
It can be a bit intimidating at first when you’re presented with a modern “candlestick” chart. So let’s start with something simpler. We’re all familiar with the basic “line” chart connecting a series of points together; when line charts are used for crypto, that point is usually the closing price on a given day.
You can learn a fair bit from reading these line charts. But you’re only getting part of the story – what about all the ups and downs that happen during the trading day? Now you need a more complex graph to capture that additional information. You need a bar graph, which will show you the prices at the open, high, low, and close (OHLC) of each trading day.
That’s still not enough for most traders, though. Not only do candlestick charts provide you all this OHLC information, they show it in a way that’s somewhat easier to visually digest than bar graphs. It depends in part on your own personal preferences, and what specific information matters to you most.
The best thing about candlestick charts might be the color. When the closing price is higher than the opening price, the “candle” (really a bar in and of itself) is shown in green; when the closing price is lower, the candle is red. This lets you more easily visualize the trading patterns over time, and make smarter trading decisions based on that information.
What About These Wicks?
That’s the part of the candle (also a bar, but really skinny) that shows the daily price highs and lows. The important thing to look for here is the length of those wicks at either end; generally speaking, if the wick at the top is short, traders were more likely to be buying than selling at the close, which suggests the price may continue to rise the following day.
Conversely, if the wick at the bottom is short, traders were probably selling at the close, and may continue to do so when the market opens again. Long wicks mean the exact opposite, so if you see one at the top of the candle, be ready for more selling, and if you see one at the bottom, be ready for more buying.
Breaking these charts down into candles and wicks makes it easier to spot shorter-term betting trends through pattern recognition. Savvy traders are out there right now looking for certain shapes to appear in the charts, like the Hammer Pattern, which forms during downtrends with short candles and very long wicks – ideally at least twice as long. This pattern suggests that sellers have exhausted themselves at new price lows, and that a bull market may be emerging.
On the bear market side, we have the Shooting Star Pattern, which looks just like the Hammer Pattern, but forms during an uptrend in the market. Now we’re in a situation where buyers have boosted prices to what are probably unsustainable highs, and the sellers are on the march.
Ideally, you’ll start by analyzing line charts when you first dabble in crypto, then move your way up to bar charts and candlestick charts as you get your feet wet. Use the same approach once you’re comfortable with the candles; start looking for the basic Hammer and Shooting Star patterns, then branch out into more complex shapes like the Engulfing Pattern for both bullish and bearish markets. And as always, keep hitting us up here at Bookmakers Review for more crypto tips and analysis.
