It's not my birthday, it's not all souls' day so why am I seeing a lot of candles?
One of the first images I saw when I read about cryptocurrencies is something along this line :
As I read around from publication to publication, I found out that the graph in the center is called a candlestick chart. And I found the name fitting and it just made so much sense. As can be observed in the image above each little part consisting of the whole chart are like candles of varying sizes with their wicks varying in length.
What is a Candlestick Chart
A candlestick chart is a visual representation of an asset's price movement over a set period of time. It shows the evolution of an asset's price and can often be used as a trading tool to read and understand the market trend. A candlestick chart is more descriptive and more informative than the usual line graph.
Candlestick charts were first used by rice traders in Japan back in the 1700s. They devised a way to plot the price changes to further analyze their market and its trends.
Parts of the Candle
A candle describes an interval of time in the asset's price history. It can be a duration of 1 minute, 5 minutes, several hours, a day a month, or a year. It depends upon the parameters and criteria a user applies. A candle has four main components as visualized below :
The body of the candle is, as mentioned indicates a duration in time in which the asset has been observed. It is pictured as a thick and wide line. The length or the height of the candle's body will be dependent on the variance of the open and close value of the asset. The body of the maybe color green or red. The color will also depend on the open and close value.
The open part will be the beginning value or price of the asset at the start of the observation period.
The close part is the ending value or final price of an asset after the duration is finished.
The wick or shadows as others call them indicate the lowest or the highest price the asset has achieved during the indicated duration.
When the open value of a candle is lower than its close value, the candle will be colored green. This candle is often referred to as a "bullish candle". Basically, this means that the price or the value of an asset went up during that particular period of time.
On the contrary, when the open value of a candle is higher than the close value, the candle is colored red. A red-colored candle is often referred to as a "bearish candle". This simply indicates that the price of the asset went down in that particular chunk of time.
It is noteworthy that the open value will be on the bottom of the candle if it is a green one, the open value will be on top when the candle is red.
The higher the variance of the open and close value of a candle, the longer the candle will be.
The wick below a candle indicates the lowest price of the asset, regardless of the color of the candle.
In some cases, the candle will have no observable body. In these cases, the open and the close value of the asset are the same.
When looking at the chart, each candle is directly connected to the candle prior to and next to it. The open value of a candle is the close value of the previous candle, and its close will be the open value of the next one.
Looking at a candlestick chart with a 5-minute interval does not necessarily picture the same trend as its chart with a daily or monthly interval. If you are looking to be a long-term trader, using a chart with a wider time interval may be helpful. And of course, when it comes to crypto trading, "long-term" can be as short as 5 minutes.
I believe that knowing how to interpret the candlestick as a whole will be an extremely needed skill when it comes to trading in crypto. In theory, this chart shows how the market emotion affects the price evolution of an asset. Identifying observable patterns will be essential to somehow predict the asset's price trend. And to sum it all up. I have a gazillion more things to learn about this one. I think that I will stop at this point. I will be back when I understand more of this.