Candlesticks measure four price points in a full trading day. This includes the highest price, the lowest price, and the daily open and close. The candlestick chart represents the most commonly used chart style across the world, so understanding how to read candlesticks is very important.
How To Read Candlesticks
Candlesticks are the most crucial part of charts because they tell us the one thing we care about most: the price. Candlesticks are the preferred method of viewing the price for most crypto traders because it gives us insight into whether the price action was positive or negative and the degree to which it was.
The price of an asset versus another asset is the data that nearly everything centers around. Candles are denominated in several different time intervals. Customary intervals in crypto include one hour (1h), four hours (4h), and one day (1D).
A one-hour candle maps out the price movements of an asset throughout a one-hour period. Because crypto trades 24 hours a day, the open and close prices are the prices at the beginning and end of the selected time frame i.e. there will be no gaps in the chart.
Open, High, Low and Close
Whether a candle uses a one-hour, four-hour, or another time specification will change the components of the candle. There are two components of a candle: the body and the wick.
The wicks of a candlestick represent the high and low price during the trading period, with the lower wick denoting the low price and the upper wick denoting the high. Wicks, also known as shadows, can tell us a great deal about the price movements of an asset.
Longer wicks tell us that prices fluctuated significantly from the open and close prices, while shorter wicks signify less volatility within the trading session. If the upper wick or “shadow” is longer than the lower, buyers moved the prices higher early, but sellers were able to drive the price down near the opening price closer to the end of the period.
If a candlestick has a long lower wick and short upper, sellers drove the price way down early, but buyers were able to recover some of the losses before the close.
The body of a candlestick displays the open and close price of an asset. The body is green (typically) when the close price is higher than the open price, thus the open price will be at the bottom of the body while the close is at the top. When the body is red, the close price will be at the bottom while the open price is at the top.
The length of the body indicates the strength of buying or selling pressure during the interval. A long green body represents strong buying pressure. A long red body is an indication of hefty selling pressure. A short body indicates small amounts of buying and selling activity e.g. low volatility.
Using TradingView on Token Metrics
One of the most requested features in Token Metrics 2.0 was a charting system with which our customers could do technical analysis within the web application. Thus, we integrated TradingView charting software so our users could research and do TA in one location!
If you hover your mouse over a candle you can view the open, high, low, and close (OHLC) prices in the top left. At this time, Token Metrics is using daily candles within our TradingView charts.
TradingView gives technical analysts all the tools required to predict pricing movements by analyzing candlestick patterns. These tools include but are not limited to Bollinger bands, awesome oscillators, and Elliot wave combo pattern figures.
To learn other trading strategies aside from how to read candlesticks, see our post Best Crypto Bear Market Strategies for 2022, here.