History

The fundamental concepts of candlestick analysis were developed in the XVII century by Japanese trader Munehisa Homma. In his mind, an ideal system for displaying price should also be a tool for analysis, which is exactly what happened – thanks to the advantageous distinguishing characteristics of Japanese candlesticks. Munehesa created an independent system that allowed any trader to accurately predict price changes in the market and, as a result, make sound decisions about when to buy and sell an asset.

Candlestick

Are you a newbie in the crypto market and are unable to circumvent the whole aspect of understanding when and when not to trade, then you have nothing to worry about? This article will elucidate on this.  A candlestick is a chart that shows the high, low, open, and close of a digital currency in a specific period. They are used by traders to represent the price movement of an asset. The candlestick chart has four key elements: the opening price, the high, the low, and the closing price. These elements vary over time. It can be an hourly, daily, weekly, or monthly time frame.

How they are formed?

Candlesticks are usually composed of two colors: green and red. The parts of a candle are the wick, the body, the highest and lowest price, and the opening and closing price. The parts of a candle are the wick, the body, the highest and lowest price, and the opening and closing price. The body, a wide midsection of the candlestick, indicates the difference between the opening and the closing range on the chart. The wicks (shadow) also known as the high and low reveal the highest and lowest price of an asset within a candlestick. 

They are simply thin lines extending above and below the body. The highest price indicates the price traded while the lowest price indicates the lowest price traded. The close is represented at the top of the green candlestick and at the bottom of the red candlestick while the open is the opposite, represented at the bottom of the green candlestick and the top of the red candlestick. The opening price is the price at which the first trade happened while the closing price is the last price traded during the period of the candle formation.

How to read candles?

Reading candlesticks is quite simple. Note that the red pattern indicates that sellers are in control while the green indicates that buyers are in control. As mentioned earlier, candlesticks vary by time and a candle rarely holds its pattern for too long, given the volatile nature of the cryptocurrency market. For example, if a two-hour candlestick opens at $20 and within an hour it moves to $40, you’ll notice that the shape of the candlestick will have changed dramatically. 

However, traders have found that the same candlestick shape occurs at the same stage of a price trend, regardless of the commodity being traded. It can be very beneficial to identify such changes, as it gives clues as to when there might be a reversal, a continuation, or when market indecision is at its peak. 

How to use it on bit4you?

In addition, candlesticks are read via pattern recognition and are made up of one, two, or more candlesticks. These patterns are divided into bullish and bearish patterns. On the bit4you charts, you can see both bullish and bearish candles. They are shown there on the charts in the section with indicators. In the bullish patterns, we have the hammer, the reverse pattern, the bullish engulfing patterns, the piercing line, the morning star, and the three white soldiers. Bearish patterns include the hangman, shooting star, bearish engulfment, evening star, three black crows, and dark cloud cover. We’ll look at some of these patterns.

The hammer

One of the easiest patterns to identify is that of a candlestick with a lower wick at the bottom of a downtrend. It could be either red or green. This may indicate a strong reversal trend and a potential price surge.

The bullish engulfing pattern

This pattern is made up of two candlesticks occurring at the bottom of a downtrend. The first is bearish while the second bullish engulfing the other. This pattern indicates increased buying pressure and the genesis of an uptrend as buyers are likely to drive the price up.

The shooting star

 It is made up of one candlestick with tininess and a lower wick. Unlike the inverted hammer, this pattern occurs at the top of an uptrend. This indicates that there has been a strong price rejection after a significant push-up. This pattern is often associated with a bearish reversal signal.