If you want to trade cryptocurrencies you have to understand price movements. The most common way to represent price movements is by a candlestick graph. In this blog post, we will show you how to read candlesticks and what they represent.

Candlestick charts have a long history. They originate from Japan. In the 18th century, a Japanese rice trader named Homma was one of the first individuals to use historical price actions to predict the prices in the future. Candlestick charts were later brought to the western world by Steve Nison.

Types of candlesticks

Candlesticks can be divided into two groups:

• increasing or bullish  (green or white color)
• decreasing or bearish (red or black color)

Parts of the candlestick

The candlestick is based on the four prices of the asset over a given period of time: the opening price, highest price, lowest price, and closing price (OHLC).

The range between the opening and closing price is known as the body.

Thin lines above and/or below the candlesticks are known as the wicks and they represent the lowest and highest price in the selected time period.

Bullish candlestick

An increasing or bullish candlestick is when the open position is below the close position as shown in the picture above. Above the close is the highest point of the candle and below the open is the lowest point of the candle in the selected time period.

Bearish candlestick

Decreasing or bearish candlestick is when the close position is below the open position.  Regarding the wicks, it is the same as with the bullish candle. They represent the highest and lowest point of the candle in the selected time period.

Importance of timeframe

Why is the time period mentioned so many times? Because candlesticks can be used in any timeframe from 1 minute to 1 month.

Each candle shows (represents) the time period we have chosen.

If we have chosen a time period of 30 minutes, 1 candle will represent a period of 30 minutes. If we have chosen a time period of 1 day, 1 candle will represent a period of 1 day.

The wicks will then present the highest and the lowest price at that selected time period.

Depending on the chosen time period, we also distinguish between short-term and long-term price trends.

The short time interval is mainly used in daily trading, while the longer time interval is used for long term investments and determining the general trend.  (In the selected short time interval, there may be an upward trend, despite the long-term downward trend. And vice versa.)

Patterns

As time goes on, we can stack the candlesticks from left to right and we get a candlestick graph. Traders are very interested in patterns that candlesticks create.

There are simple candlestick patterns based on one candlestick position, and more advanced patterns involving multiple candlesticks in a row. We will go into more details and over some basic patterns in the next blog post. For now, all you need to know is that just like with the candlestick, patterns are also separated into two groups: bullish and bearish.