How to Read Candlestick Charts [Crypto Edition]

As a new trader, the world of investing and trading in cryptocurrency can be extremely confusing and intimidating. Learning how to read technical analysis charts is pivotal in your success as an investor, but many guides can make it seem like a foreign language. This guide was created to help even the most ranked beginner learn how to understand the basics of candlestick charts.

• Also learn about: How to Use Simple Moving Averages

Disclosure: No content in this article should be taken as financial advice. Investing can be risky, so it is recommended that you consult with your accounting, legal, and tax advisors before engaging in any kind of transaction. 

The Basics of Candlestick Charts

The image below shows a candlestick chart that you may be familiar with seeing. There are a ton of candlesticks and indicator lines that mean seemingly nothing right now.

However, when we take away the indicator lines, we are left with a much more straightforward candlestick chart to take a look at. This raw data we are left with is called “naked price action.” This data is the most essential information for any trader to know. The naked price action tells you precisely what the price is doing at any given time period. The lines on the chart we saw previously are indicators, and those are built off of the naked price action data. 

Each candle represents the price action at a certain period of time. If you are looking at a 5-minute chart, that means that each candle represents 5-minutes’ worth of price action. Alternatively, if you are looking at a 1-hour chart, each candle would represent 1 hour’s worth of price action.

The chart we see now is made up of individual candlesticks. These candlesticks are bullish or bearish.

Bullish Candles

A green candle is a bullish candle. A bullish candle simply means that the price has increased over the time period. You can remember this as a bull thrusting its horns upwards.

Bearish Candles

A red candle is a bearish candle. A bearish candle shows that the price decreased over the time period. You can remember this as a bear swiping downwards.

Real Body

Each candle also tells us more information about the price action. The rectangular part of the candle is called the “real body.” The real body shows us the opening and closing price. If we look at the bullish, green candle, the bottom of the candle shows us the opening price. The top of the bullish candle shows the closing price. 

Bearish candles are reversed, which means the top of the candle shows the opening price, and the bottom shows the closing price. How you read the candles is reversed because a bearish candle shows a price decrease, while a bullish candle shows a price increase.

Shadows, Tails, and Wicks

So what are the vertical lines coming out of the real bodies? These vertical lines are referred to as different things such as shadows, tails, or wicks. For this example, we will call them “wicks.” The candle’s wicks show the highest and lowest prices of the period. This means the price has touched the very top and very bottom of the wicks as the candle was forming. Understanding the highest and lowest prices that the market opened and closed at is vital information for an investor. 

Doji Candles

One other type of candle you should be familiar with is “Doji Candles.” These candles have little or no real bodies. If you see a Doji candle, this means that the price opened or closed at the exact same (or very close to the same) price. Because of this, there will be little or no real body.

How to Read Candlestick Charts – A Crypto Example

Below you will see a 5-minute chart of Bitcoin (BTC) and U.S. dollar (USD). A bullish candle is highlighted. As you can see, the box with all of the information on this candle is provided for you. The time of this candle was between 1:05 pm and 1:10 pm on December 12, 2021. You can see the opening price of the top of the candle and the closing price from the information provided.

You’ll see that all of the information on this chart is based on price action. Here you will see some bullish candles and the market pushing higher as the price increases. A bullish candle trend means there is a lot of confidence in the market.

Bearish candles show that the price is decreasing and the market is falling. There is a lot of fear in this type of market.

You should also notice that most of the candles have wicks that you can see on both ends of the candle. 

If you continue to look at the chart, you’ll also see some Doji candles, where the price has opened and closed near the same price.

The Bottom Line

This article covered the basics of reading candlestick charts for cryptocurrency. Learning about technical analysis is very important to succeed as a new trader. This guide was created to help demystify candlestick charts, so we hope you learned something and feel more confident reading candlestick charts!