Family, when you first enter the cryptocurrency space, does looking at candlesticks feel like reading a foreign language? With those red and green bars making you dizzy? Don't worry, today we'll explain it in plain language, and after reading, you'll no longer be confused when looking at candlestick charts!
First, let’s discuss the basic composition of a candlestick, just like knowing a person's height and weight, you need to know these basic data.
The opening price is the price of the first transaction at the start of a trading day. For example, if a coin opens at 9 AM and the first transaction is at $100, then $100 is the opening price.
The closing price corresponds to the opening price and is the price of the last transaction at the end of the trading day. For instance, if the coin closes at 4 PM with the last transaction at $110, then $110 is the closing price.
The highest price is the highest point reached by the coin's price during the day. For instance, if the coin rises to $120 at one point during the day, then $120 is the highest price.
The lowest price is the lowest point reached during the day; for example, if the lowest price falls to $90 that day, then $90 is the lowest price.
Knowing these four prices gives you a basic idea of how the candlestick looks. A candlestick typically consists of three parts:
The upper shadow, located above the candlestick, represents the price range between the highest price and either the closing price or the opening price. Whether it's with the closing price or the opening price depends on whether the candlestick is bullish or bearish. It's like a matchstick; the small part that sticks out above is the upper shadow.
The body, this part is the price range between the opening price and the closing price. The common bullish candle is usually red or white, indicating that the closing price is higher than the opening price, which means it has increased; the bearish candle is usually green or black, representing that the closing price is lower than the opening price, meaning it has decreased. You can imagine the body as a rectangle, with the closing price on top of the bullish candle and the opening price below, while the opposite is true for the bearish candle.
The lower shadow, located below the candlestick, is similar to the upper shadow and represents the price range between the lowest price and either the opening price or closing price, depending on whether the candlestick is bullish or bearish. Again, it resembles a matchstick, with the small part that sticks out below being the lower shadow.
Next, let's talk about how to interpret candlesticks, which is key to analyzing the market.
First, look at a single candlestick. A bullish candle means the market rose during this period, while a bearish candle means it fell; this is easy to understand.
Looking at the size of the body, the longer the body, the stronger the market's momentum. A long bullish candle indicates strong upward momentum, like being pushed hard from behind while running; a long bearish candle indicates strong downward momentum, like being harshly pulled back while running.
The length of the shadow also has its meaning; the longer the shadow, the stronger the resistance or support the market encounters in that direction. A long upper shadow indicates significant resistance during an upward movement, as if there is a wall blocking it; a long lower shadow indicates strong support during a downward movement, as if there is a heavy stone pulling it down.
Then there are candlestick patterns, which are like observing a group of people's movements and can reveal more insights.
A double bottom, or W bottom, looks like a 'W'; this signals that the market is transitioning from falling to rising, like a person squatting before standing up. A double top, or M head, looks like an 'M'; this signals that the market is transitioning from rising to falling, like a person jumping and then coming back down.
The head and shoulders bottom and head and shoulders top: the head and shoulders bottom looks like a person with their head down, shoulders on both sides, signaling a market reversal to the upside; the head and shoulders top looks like a person with their head up, shoulders on both sides, signaling a market reversal to the downside.
A pregnant line looks like a mother with a baby; a large candlestick in front and a smaller one behind it, indicating that the market may reverse, like a change in the weather.
A doji star occurs when the opening price is nearly the same as the closing price, resembling a 'plus' sign, indicating a balance of power between bulls and bears, where neither side gains an advantage. If it appears at a high level, it may signal a peak; if it appears at a low level, it may signal a bottom.
The Red Three Soldiers and Three Crows: the Red Three Soldiers are three consecutive bullish candles, like three little soldiers advancing forward, indicating a strong upward market; Three Crows are three consecutive bearish candles, like three crows calling, indicating a weak downward market. However, note that Three Crows during an upward trend may be the bulls gathering strength, and it could rise again later.
Finally, when looking at candlesticks, it is essential to consider both the position and volume.
Position is particularly important; the same candlestick has different meanings in different positions. For example, a long upper shadow at the beginning of an upward movement may indicate that the main force is testing the market to see how much selling pressure there is; if it appears at the end of an upward movement, it may indicate that a peak is approaching and a decline is imminent.
Volume refers to trading volume, which is an important indicator for assessing market trends. A bullish candle with increasing volume suggests that there are many buyers and strong upward momentum; a bearish candle with increasing volume may indicate many sellers and strong downward momentum.
So, after explaining all this, do you feel that candlesticks aren't so difficult? Hurry up and take out your candlestick chart to compare and study; soon you'll be able to understand it too!
I am Old Bo, focused on analysis and teaching, a mentor and friend on your investment journey! I hope everyone investing in the market can sail smoothly. As an analyst, the most basic thing is to help everyone make money. I can help solve confusion, positions, and provide operational advice, letting my performance speak for itself. When you feel lost and don't know what to do, look to Old Bo (homepage) for guidance.
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