Japanese candles – the basics of chart analysis

Japanese candles

If you are new to trading, I encourage you to look at the candlestick chart when analyzing markets. If you are an experienced trader, you probably already do. Candles on their own, apart from more complicated technical analysis patterns, give the most clear and accurate signals in the cryptocurrency markets. On most exchanges, the candlestick chart is set automatically, but often on external sites such as tradingview, we have a simplified line chart, from which you can also read a lot, but as you will see, not everything.

Building a candle

The candlestick chart is drawn by adding consecutive candles. For example, if we have a 1-hour interval set, then each candle will be drawn exactly as much. The price can fluctuate greatly over the course of an hour. Its total amplitude in a given interval is determined by its shadow or wick, marked in the picture as the lowest and highest price. Each candle has a fixed opening price. In the cryptocurrency markets, trading is continuous, so there are usually no so-called gaps, so the closing price of a candle is equal to the rubbing price of the next one. The color of the candle will be determined by its closing price. If after an hour it is higher than the opening price – the candle will be green, if lower – we will deal with a downward candle.

Basic trend reversal patterns

One of the most common reversal patterns is a long-body candlestick that covers all or a large majority of the previous candlestick’s body. There are many terms that describe the exact pattern, but the principle is the same. If there is a long bearish candlestick at the end of a long bearish or downtrend, there is a high probability of a trend reversal or at least a correction.

Another group of candles that heralds a trend reversal are candles with a long wick. Again, especially those that occur at the end of a longer move, away from the last lows or highs, provide a stronger signal. Examples of such candles are e.g. “hammer” and “shooting star”. A long shadow shows that there is an increased demand or a sale and the price simply wants to return to the previous levels.

A few examples of the occurrence of the above-mentioned candles in the bitcoin market.

This entry is only an introduction to Japanese candles, there are many more precisely described patterns, but the above ones are the most basic and common. The article is also not an investment advice, it is only informative and introductory.

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