Candle Analysis

Candle Analysis

Contents of this article:

Japanese candlesticks are considered one of the oldest stock analysis tools. Traders actively use them to identify market trends and find the best entry point into a trade. Candles are highly informative; if read correctly, this method of analysis increases the efficiency of trading .

What is cryptocurrency candlestick analysis?

Candlestick analysis is used to predict the price of an asset. The basics of this method appeared several centuries ago, and today candles are called one of the most popular tools on the market.

Japanese candlesticks help traders predict future price movements, so players can make the right decision about which trade to open and when. Candles are divided into two types – bullish, for a growing market, and bearish, for a falling market. On the chart, the bullish ones are highlighted in green, and the bearish ones are highlighted in red.

A candle has a body, it is represented as a rectangle, and shadows or wicks. The body shows prices at the opening and closing of a given time interval, and the wicks growing up or down from the body show the maximum and minimum price of an asset within a given interval.

How to read a candlestick chart?

Analysis of the candles on the cryptocurrency chart allows you to predict the further movement of the rate and assess the mood of market participants trading a particular asset. A large number of candles on the chart form patterns, they give traders signals about the possibility of opening deals. There are many types of candles, but to read the chart, it is worth studying at least the most common ones.

Common bullish patterns:

  • Hammer. The candle has a small body and a long lower wick, the upper wick may be very short or absent altogether. The hammer is green and red, depending on the trend, indicating an increase in the rate or a powerful trend reversal.

  • Inverted Hammer. It differs from the usual one in the location of the long wick; in an inverted hammer, the long wick is on top. It also happens to be green and red, signifying a potential start of an uptrend in the market.

  • Bullish takeover. The pattern is built from two candlesticks, formed at the end of an uptrend. The first candle is red (bearish), the second green (bullish) and larger, its body is able to absorb the red. There is always a small gap between the opening and closing prices of both candles. The pattern indicates that there are more buyers in the market than sellers.

Common bear market patterns:

  • Hanged. This is an alternative version of the hammer, only in a bear market. It appears at the end of an uptrend, the candle has a small body and a long wick at the bottom. The hanging man is red and green, indicates the weakness of the uptrend, and traders perceive it as a signal to sell the asset.

  • Falling star. This is one candle with a short lower wick, a long upper wick and a thin body. The pattern is formed at the peak of an uptrend, it indicates a bearish reversal.

  • Bear takeover. It is built from two candles, green and red. A bearish red candle is quite large, it is able to absorb a small green one. There is also a small gap between the opening and closing prices. Such a pattern appears at the top of an uptrend, it indicates the dominance of sellers and signals the beginning of a downtrend.

These are just a few popular patterns that help traders make predictions. There are about 50 different candles in total, but even professional traders do not know the values of all of them by heart. To begin with, it is worth studying the most common ones and trying this type of analysis in practice.

Despite the high efficiency of the candlestick chart, not everyone can use it. It belongs to a complex type of analysis, and traders need to have some experience in order to read candles correctly. Crypto traders will help you get this experience and understand the features of candlestick analysis in crypto Crew . We teach beginners how to use analytical tools correctly and work effectively with various charts, build profitable stock trading strategies and manage risks.