In digital asset trading, technical analysis provides various tools to help traders determine trends and anticipate their next moves. There are several ways to display the historical price of an asset. The three most popular chart types are line charts, bar charts, and candlestick charts. Most traders prefer candlestick charts since they provide helpful patterns that inform traders of anticipated trend reversals or continuations with a consistent degree of accuracy. In other words, candlestick charts act as trading signals that help traders decide what moves to make in the market.
Candlestick charts often represent fluctuations in a digital assets’ price and inform traders on market trends. The colored portion of the candlestick is called “the body” and the thin lines above and below the body represent the high/low range of prices in the specified time period and are known as “shadows.” Rising prices are marked in green, and falling prices are marked in red.
Candlestick charts can be represented with different time frames, such as monthly, daily, hourly, and minute candlesticks.
After some practice, Candlestick charts are easy to read as they contain plenty of information on historical price data. There are many chart patterns formed by candlesticks organized in a certain way. Some examples are double tops, double bottoms, flags and pennants.
Candlestick patterns give digital asset traders additional insight about the potential market moves expected to emerge. In other words, candlestick charts act as trading signals that help traders decide when to open long or short positions and when to exit the market.
Even novice or advanced traders can learn to read candlestick charts by looking at pricing trends visually. These visuals provide intel to help traders identify specific patterns in the candlestick formations, especially at resistance and support levels.
Popular Terms Used in Reference to Candlestick Charts
Here are a few terms that traders should be aware of whenever they trade using candlestick charts:
- Emerging patterns – these are candlestick patterns that haven't fully formed yet.
- Completed patterns – Patterns that have already developed and can are regarded as bullish or bearish signals.
- Open – the opening price represented on the candlestick based on the time frame.
- Close – the closing price of a candlestick based on the time frame.
- High – the highest level that the price reached during the time frame covered by the candle.
- Low – the lowest level that the price touched during the time frame covered by the candlestick.