Trading in crypto isn’t much different from trading on the stock market. Crypto trading is – however – much more accessible. That would mean you can do it too! But before you start making an account on Binance, Bibox or YoBit, it’s time to talk about those candlesticks. Because those red and green sticks are one of the main indicators to show the direction of a currency, token or asset.
What is a candlestick?
A candlestick represents the price activity of an asset during a certain time frame. In every exchange you can change the time frame yourself. Each candle stick is represented by four main elements: the low, open, close and high. The open represents the price point at which trading started during that current time frame. The close represents the final price during that time frame. Based on whether the price went up or down, the candle will be green or red. During a time frame is fairly possible that price also went higher or lower than the close and open, which is represented by thin lines on top (the high) and at the bottom (the low) of each candlestick.
In general each candlestick represents one, two, four or twelve hours. But if you’re more into long term trading, you can also take a look at candlesticks that represent days, weeks or months. With volatility that coming with crypto however, it doesn’t seem smart to look at the monthly candlesticks when you’re interested in trading. A green candlestick is called ‘bullish’, while a red candlestick is called ‘bearish’.
Prices in crypto fluctuate a lot. A certain token can be 10 dollars when you open your computer, and by the end of the day the price can be 7 or 13 dollars. With those price differences, there’s obviously money to be made. You can see red and green candlesticks and buy some assets based on that, but there’s more to learn from looking at those two-colored pillars. While trading you can read the candlesticks and attach some human emotion to it… so you can get an idea of how the market thinks about a certain asset.
When there’s a very small body (the margin between the open and the close), and there are big wicks (the high and the low), then it’s very clear that the market is not very decisive on the price of this certain asset. There are more doji candles that each represent a different trend. A hammer only has a wick at the bottom, at least two times the size of the body. A hammer is often considered a potential downtrend reversal. That would mean the price dropped a lot, but quickly moved back up. This can be the start of something that represents a bullish upwards direction. And the opposite of a hammer, would be a shooting star. A shooting start would occur at the peak of a bullish trend, so that would be the moment to sell.