Candlesticks

What Is Candlesticks?

A candlestick chart is a graphical representation of data, often financial price data that provides a clear understanding, allowing analysts to read markets and forecast the future movement of prices. It can present long-term as well as short-term data for perfect analysis, regardless of the asset in question or the market being analyzed. In all, candlesticks provide a quick summary of a market, whether it is moving positively or negatively, and to what extent, and have proven useful over the years.

Historically, a candlestick chart is an invention of the Japanese, which the West later adopted after some changes. However, the importance of candlesticks rose exponentially after the cryptocurrency traders started using them. Cryptocurrency traders use them to measure the extent of a bearish or a bullish trend.

Candlesticks indicate regularly occurring information patterns visually, which helps traders make decisions based on short-term price movements. Often, candlestick charts aid traders in measuring the sentiment of an asset and help to make a well-calculated guess.

Technical analysts depend hugely on candlestick charts, and understanding candlestick charts is an essential and fruitful trading strategy. It includes investing the money by assuming that the price will follow the previous candlestick chart patterns.

Understanding a Candlestick Chart

Understanding a candlestick chart (deep analysis) is a science as it demonstrates a multitude of information. Those who don’t know candlestick chart patterns cannot decode the data productively.

A candlestick’s colored portion (wide part) is referred to as the body of the candlestick. The lines stretching from above the body and coming down are called wicks. The stripped part above or below the body is called shadows.

Traders always wish for an empty body candlestick because it depicts that the market closed at a higher price than its opening price. The colors used in candlesticks are also meaningful, as green signifies a price increase while red means a price decrease.

A candlestick chart presents four things:

  • the opening position
  • the highest point of the day
  • the lowest point of the day
  • the closing value

But a candlestick chart can also show weekly, monthly, and quarterly data. Advanced candlestick charts are automated and keep updating after a regular interval. Bar charts also perform the same function, but candlestick charts do it in a much better and presentable way.

Common Stick Positions

Although no two candlestick charts present 100 percent the same information, their patterns can be the same. Some common bullish movement candlestick patterns are:

  • Hammer
  • Inverse hammer
  • Piercing line
  • Morning star

Contrary to these patterns, the following patterns depict a bearish trend.

  • Hanging man
  • Shooting star
  • Evening start
  • Dark cloud cover

It is pertinent to mention that a candlestick pattern can comprise more than one bar. Furthermore, multiple candlesticks can be merged within a chart to form one candlestick. A blended candlestick pattern presents more information than a regular candlestick chart.

Nowadays, candlesticks charts have become a mandatory part of 90 percent of brokerage platforms. They proudly presented it as a research tool and expected that candlesticks would improve even more in the upcoming time.

Josh Fernandez

Josh Fernandez

20-something Non-giver of ETH.

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