Candlesticks Definition
Candlesticks, in reference to cryptocurrency and blockchain technology, are visual representations used in technical analysis of digital currency price movements. It originated from Japanese rice traders and was popularized in the west by Steve Nison’s book, “Japanese Candlestick Charting Techniques”. A candlestick consists of four main components: open, close, high, and low price during a specified period.
Candlesticks Key Points
- A Candlestick charts provide more information than a line graph of price movements.
- The ‘body’ of a Candlestick shows the opening and closing price of an asset during a specific period
- ‘Shadows’ or ‘wicks’ represent the high and low prices during the same span
- The color of the candlestick indicates if the closing price was higher or lower than the opening price
- They can reflect market sentiment and are known to form patterns that traders interpret for future price movements.
What are Candlesticks?
In the world of cryptocurrency trading, candlesticks are used to illustrate movements in the price of an asset over a specified time period. They allow investors to study the sentiment within the market and make predictions on future price movements. The pattern of a candlestick chart is more detailed and offers a comprehensive image of price action, which makes it popular among traders.
Why are Candlesticks important?
Candlesticks are significant as they provide a graphical illustration of supply and demand for a certain period. By showing key data points, they give a detailed picture of the market sentiment, which can help traders make more informed decisions. They also provide a concise way to identify potential reversals in market trends, supporting the decision-making process for buying or selling.
How do Candlesticks work?
A candlestick is composed of a box called the ‘real body’, and thin lines that extend from the body called ‘shadows’ or ‘wicks’. If the close price is above the open price, the body is hollow or filled with the color representing an up-move (typically green). If the open price is above the close price, the body is filled with the color representing a down-move (typically red). The wicks represent the highest and lowest prices during the given time period.
Who uses Candlesticks?
Candlestick patterns are widely used by traders, financial analysts, and investors who engage in technical analysis when trading cryptocurrencies. They rely on them to understand market trends and forecast future price movements. Both day traders and long-term investors find candlesticks exceptionally helpful in understanding the volatility and predicting price swings.
When are Candlesticks used?
Candlesticks can be used across a multitude of timeframes, from one minute to one year, depending on the trader’s strategy and the trading style. They’re utilized extensively during active trading hours to monitor price action closely. They also aid during the analysis phase when traders are configuring their next move based on possible future price movements.
Where are Candlesticks presented?
Candlesticks are presented on a chart, which is a fundamental tool in technical analysis. This may be through one’s trading platform or through charting platforms like TradingView. Candlestick charts are commonplace in financial markets including Forex, commodities, indices, and particularly crypto markets, given their volatile nature.
