Candlesticks are the most commonly used form of charting in trading. This Candlesticks 101 will take you through everything you need to read crypto price charts. (And any price charts for that matter.)
- What is a candlestick
- What is a candlestick chart?
- How to read candlestick charts
What is a candlestick
A candlestick shows you 4 bits of pricing information; abbreviated to ‘OHLC’.
There are two distinct colours that are commonly used for candlesticks.
- Green candlesticks
- Red candlesticks
Green candlesticks show periods where price appreciated (went up). They are formed whenever price ‘closes’ higher than it ‘opened’. And shows ‘bullish‘ price action.
Red candlesticks show periods where price depreciated (went down). They are formed when price ‘closes’ lower than it ‘opened’. And signifies ‘bearish‘ price action.
OHLC stands for ‘open, high, low, close’.
These are the 4 bits of pricing information that you can pull from a candlestick.
- The open price.
- The highest price.
- The lowest price.
- The close price.
Open (the first price)
The open price is the price of the candlestick when the period begins.
Green candlesticks open
For green candlesticks, the open price is always the bottom-left corner. This is because the price will have risen since the open price if the candle stick is red.
Red candlesticks open
For red candlesticks, the close price is always the top-left corner. This is because the price will have fallen since open if the candlestick is red.
High (the highest price)
The high is always the top most part of the candlestick. Whether the candlestick is red or green doesn’t matter. The high is always the highest point, and will be the very tip of the ‘wick’ of the candle.
Low (the lowest price)
The low of the candlestick is always the bottom-most part of the candlestick. Again, it doesn’t matter if the candle is either green or red, the low is always the lowest part — the very tip of the ‘bottom wick’ of the candle.
Close (the last price)
The close of the candlestick will move until the period ends.
The close price also determines the color of the candle:
- If the close rises above the open the candlestick will turn green.
- If the close value falls below the open the candlestick will turn red.
Green candlesticks close
The close is always the top-right corner of the ‘body’ of the candlestick on green candles. This is because the price must close higher than the open to go up.
Red candlestick close
The close is always the bottom-right corner of the ‘body’ of the candlestick on red candles. This is because the price most close lower than the open to go down.
A candlestick is drawn every period. A period could be 15 mins, 1 hour, 1 day, 1 week. This is all set and chosen by the trader that is viewing the candlestick chart.
What is a candlestick chart?
Candlestick charts show you how prices have changed over time. They are the most common trading charts that you’ll see. And they’re usually jagged lines of green and red candlesticks joined to one another.
Candlestick chart axis
Candlestick charts usually have two axis:
- Price axis — usually on the right, and shows the price of an asset or trading pair.
- Time axis — usually on the bottom, and shows when a candlestick formed.
How to read candlestick charts
Candlestick charts are read in the same way candlesticks are. Just they’re formed of multiple candlesticks, consecutively.
Every candlestick represents a period of time, and shows us the high, low, close and open of each period. You can see the price action rise and fall using the right-most axis, and over what period of time using the bottom-most time axis.
There is a lot of information that can be pulled from these charts. Reading candlestick charts forms the basis of Level 1 technical analysis. Of which, candlestick patterns are some of the most basic pieces of information you should learn.