Family, when you first enter the crypto world, does looking at candlesticks seem like reading a foreign language? The red and green bars make your head spin? Don't worry, today I will explain it clearly in plain language, and after watching, you will no longer be confused looking at candlestick charts!
First, let's discuss the basic components of candlesticks, similar to how we need to know someone's height and weight as basic data.
The opening price is the price of the first transaction at the beginning 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. If the same coin closes at 4 PM with the last transaction at $110, then $110 is the closing price.
The highest price is the highest point the coin reached during that day. For example, if the coin rises to $120 during the day, then $120 is the highest price.
The lowest price is the lowest point the price dropped to during that day. If the lowest drop of the day is to $90, then $90 is the lowest price.
Knowing these four prices gives a basic shape to the candlestick. Candlesticks are generally composed of three parts:
The upper shadow is above the candlestick and represents the price range between the highest price and the closing or opening price. Whether it is related to the closing price or the opening price depends on whether the candlestick is bullish or bearish. Like a matchstick, the small part that sticks out at the top is the upper shadow.
The body represents the price range between the opening price and the closing price. The common bullish candlestick is usually red or white, indicating that the closing price is higher than the opening price, meaning it has risen; a bearish candlestick is usually green or black, indicating that the closing price is lower than the opening price, meaning it has fallen. You can think of the body as a rectangle, with the closing price at the top of the bullish rectangle and the opening price at the bottom, while the opposite is true for the bearish rectangle.
The lower shadow is below the candlestick and, similar to the upper shadow, represents the price range between the lowest price and the opening or closing price. Again, it depends on whether the candlestick is bullish or bearish. The small part that sticks out at the bottom of the matchstick is the lower shadow.
Next, let's talk about how to interpret candlesticks, which is key to analyzing the market.
First, let's look at a single candlestick. A bullish candlestick means the market has risen during that period, while a bearish candlestick means it has fallen; this is easy to understand.
Next, look at the size of the body; the longer the body, the stronger the market's momentum. A long bullish candlestick body indicates strong upward momentum, like someone pushing you hard from behind while running; a long bearish candlestick body indicates strong downward momentum, akin to being forcefully pulled back while running.
The length of the shadow also has significance; the longer the shadow, the stronger the resistance or support encountered in that direction. A long upper shadow indicates that there was significant resistance during the rise, as if there were a wall blocking the way; a long lower shadow indicates strong support during the decline, as if there were a large stone holding it back.
Next are candlestick combinations, which are like observing a group of people's actions, revealing more insights.
A double bottom, or W bottom, looks like a 'W'. This is a signal that the market is about to turn from decline to rise, much like a person squatting down before standing up. A double top, or M head, looks like an 'M' and is a signal that the market is about to turn from rise to decline, similar to a person jumping up before coming down.
Head and shoulders bottom and head and shoulders top: the head and shoulders bottom looks like a person with their head down and shoulders on both sides, indicating that the market is about to reverse upward; the head and shoulders top looks like a person with their head up and shoulders on both sides, indicating that the market is about to reverse downward.
A pregnant line looks like a mother carrying a baby, with a large candlestick in front and a small candlestick wrapped inside. This usually indicates that the market may be about to reverse, just like the weather is about to change.
A doji star has an opening price and closing price that are nearly the same, resembling a '十' character, indicating that the forces of supply and demand are balanced, and neither side has an advantage. If it appears at a high position, it may indicate a peak, and if it appears at a low position, it may indicate a bottom.
The three white soldiers and three black crows: the three white soldiers are three consecutive bullish candlesticks, representing a strong market rise; the three black crows are three consecutive bearish candlesticks, indicating a weak market decline. However, note that three black crows during an upward trend may indicate that the bulls are gathering strength, and there could be more rises ahead.
Finally, when looking at candlesticks, it is also necessary to consider position and volume.
Position is especially important; the same candlestick has different meanings in different positions. For example, a long upper shadow during the initial rise may indicate that the main force is testing the market to see if there is significant selling pressure; if it appears at the end of the rise, it might indicate that a peak is about to occur and a decline is coming.
Volume refers to trading volume, which is an important indicator for judging market trends. A bullish candlestick with increased volume indicates that many people are buying, leading to strong upward momentum; a bearish candlestick with increased volume may indicate that many people are selling, leading to strong downward momentum.
So, after this explanation, do you think candlesticks aren't that difficult anymore? Quickly pull out your candlestick chart and take a look; ponder over it a bit more, and soon you'll understand it too!
I am Lao Qi, focused on analysis and teaching, a mentor and friend on your investment journey! I hope that everyone investing in the market can have a smooth sailing experience. As an analyst, the most basic duty is to help everyone make money. I will help you resolve confusion, positions, and provide operational advice, speaking with strength. When you are lost and don't know what to do, look to Lao Qi (homepage) and let Lao Qi guide you.
