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How Candlesticks Work?

Updated: Mar 31

Learn how to read candlesticks!

With good reason, candlesticks are the most often used type of price chart watching.

They aid traders in making decisions and keeping track of the conflict between buyers and sellers at any particular time.

Candlestick characteristics

Here are some quick pointers on reading candlesticks -

The formation of a candlestick is only complete once the complete timeframe has passed.

Every candle on a 15-minute chart shows the price's activity during the previous 15 minutes. (This is an example timeframe)

A green candle denotes upward price movement, whereas a red candle denotes downward price movement.

A candle has more characteristics than just higher or lower. For example, whenever the price closes lower than what it has been for the previous 15 minutes, a thin black line is formed called a “Wick”. The wick shows the extremes of the price in the time frame rather than only the opening and closing points.

Large wicks for example show us that the price wants to reverse as every time price dropped it quickly got brought back up.

Few types of Candlesticks

"Spinning tops and Doji's" indicate that the pricing is still quite ambiguous because there are almost as many buyers as sellers. This could affect the direction of the price change depending on the trend.

"The hammer" is a very bullish candlestick because it demonstrates that the price closed higher than it had been for a brief period of time.

"The hanging man" is a particularly bearish candlestick since it indicates that sellers are attempting to drive prices lower.

“Enveloping Candle” is when the price has been growing or falling, one is bullish and the other bearish. This is the most famous as well as my favourite. It entirely "engulfs" the preceding candle in size indicating a significant rise in the volume of buyers or sellers.

“Tweezer bottoms and tops” is shown by two candlesticks, as opposed to one. Both of them have an equal wick that indicates either buyers or sellers are entering the market indicating a trend reversal at its finish.

Looking for all types of candlestick charts? Here you go.

Things to Remember

It is important to remember that Candlesticks are not the only source of truth. They are only an indication and should always be seen along with what the market is telling you. What you are seeing might simply be a general trend or indication of a support or resistance level.

Word of Advice

As we know no pattern provides you with a 100% accurate answer, it is best to use several confirmations before jumping in.

Instead of simply executing a buy order at any other support in the market, a broader setup studying that we are in an uptrend, price is approaching a support level, and a bullish candlestick inside your support region will result in more chances of success.

Ever wondered how to keep yourself save during a changing market? We've got you covered here.

Even the best traders continually reverse test their trades and refine their skills in order to be better.

As it is applicable everywhere, Practice makes perfect.

If you are into crypto and looking to hold up discussions, join communities and network better with traders and crypto enthusiasts from all over the globe, you should definitely check out Our Crypto Talk.

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