How To Read Candle Chart


The candles can change very quickly, which can make them challenging to interpret. I trade candle stick charts based on support and resistance considering the momentum of the candle sticks and the confirmed levels. The complete guide to candlestick chart has really opened my eyes. Last day I failed in consecutive 4 trades opposite direction of the up trend which was a real breakout. It emerges during positive periods and typically indicates a reversal to the negative. A bullish candle initiates the pattern, which is followed by a minor bearish or bullish candle.

engulfing candlestick

In this article, you will learn everything you need to master candlesticks patterns like a true professional. This article will help you understand trader psychology and analyse candlestick patterns to trade in financial markets successfully. You can practise your technical analysis skills on the free demo account without registration withLiteFinance. There are several ways to use and read a candlestick chart. The analysis of a candlestick chart can be fine-tuned based on your preferred trading strategy and time-frame.

If the candle is red, the closing price is at the bottom of the candle; Ether lost value. When the trend slows down, the ratio changes and the shadows become longer in comparison to the candlestick bodies. If the market suddenlyshifts from long rising candlesticks to long falling candlesticks, it indicates a sudden change in trend and highlights strong market forces. If the size of the candlestick bodies increases over a period, then the price trend acceleratesand a trend is intensified.


When the market consolidates for a while, it is basically setting up to break out in one direction or the other. The formation of this bullish candlestick pattern was the signal as to which way the market was about to break. Candlestick charts are a useful tool to better understand the price action and order flow in the forex market. However, before you can read and explain a candlestick chart, you must understand what it is and become comfortable identifying and using candlesticks patterns. When you memorize the candlestick patterns, you also need to know what’s the rationale behind them.

Single- or Multiple-Candlestick Patterns

It emerges at the bottom of a downtrend and typically indicates the possibility of a bullish reversal. The wick is the line that extends from the top to the bottom of the body of a candlestick. The open represents the initial deal of the period, while the close represents the last trade of the period. If you see a spinning top candlestick with shadows of equal lengths after a long incline or decline period for a market, it can sometimes represent a reversal in the trend. Recognize that short bodies mean there was little buying or selling pressure. Candlesticks with short bodies represent little price movement.

You use them as an add-on confirmation to a setup or strategy. Candlestick patterns can help in identifying early movement and changes in the market. But it should not be used solely on its own and enter a trade every time you see a doji.

The open stays the same, but until the candle is completed, the high and low prices are changing. It may go from green to red, for example, if the current price was above the open price but then drops below it. Candlestick charts have enjoyed continued use among traders because of the wide range of trading information they offer, along with a design that makes them easy to read and interpret. In fact, a lot of well-known technical indicators in trading crypto are based on how combinations of candlesticks appear on a chart.

Candlesticks build patterns were introduced to the Western world by Steve Nison in his popular 1991 book, “Japanese Candlestick Charting Techniques.” You don’t have to have huge amounts of money to be a financial markets trader, especially if you want to trade forex since many online brokers only require modest margin deposits. Engulfing candlestick patterns are double candle patterns.

The candlestick that results from varying the duration of the top and lower shadows resemble a cross, an inverted cross, or a plus sign. When there is a Doji, both buyers and sellers appear uncertain. Is a very important step before one decides on blocking a certain amount of funds in a token.


If a candlestick has both a long upper and lower shadow with a short body, then it is called a spinning top. This kind of candlestick indicates that prices moved up and down a lot during trading, but neither buyers or sellers dominated the trading session. Look for longer upper shadows to see if buyers drove prices. Candlesticks with long upper shadows and short lower shadows show that buyers drove up prices during trading but sellers forced them down by closing time. This helps you understand the activity that influenced trading of the market.


Well, the price closed the near highs of the range which tells you the buyers are in control. CoinGecko provides a fundamental analysis of the crypto market. In addition to tracking price, volume and market capitalisation, CoinGecko tracks community growth, open-source code development, major events and on-chain metrics. The initial price exchanged during the development of a new candle is represented as the open price. If the price begins to rise, the candle will become green and the candle will turn red if the price falls. Our trained team of editors and researchers validate articles for accuracy and comprehensiveness.

What is interesting is that I trade options and using much shorter time frames and the concepts you teach work at any time frame. Even though I don’t follow you nearly as much, if I need a refresher, my first and only choice is you. Continue to share your knowledge to everyone and I’ll continue to share your name to anyone who is interested. Alternatively, you want to see how the price approach a level.

And silly to memorize every single candlestick pattern because you’ll “burn” yourself out. So, before I dive deep into this candlestick chart tutorial, you must first know the basics of a candlestick pattern. Actually, this article helps me a lot about observing the candlestick chart but I have some unanswered questions.” Doji candlesticks that have both long upper and lower shadows indicate that there is a lot of indecision in the market. If there is no upper shadow, then the highest price is the same as the opening or closing price, depending on whether the market is trending up or down.

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During a trend, the candlestick bodies are often significantly longer than the shadows. The stronger the trend, the faster the price pushes in the trend direction. During a strong upward trend, the candlesticks usually close near the high of the candlestick body and, thus, do not leave a candlestick shadow or have only a small shadow. The area between the open and the close is called the real body, price excursions above and below the real body are shadows .

You can choose the length of the period by changing your chart’s timeframe. On a 1-hour chart, for instance, each candlestick represents one hour of activity. A candlestick pattern is a particular sequence of candlesticks on a candlestick chart, which is mainly used to identify trends. A candlestick chart (also called Japanese candlestick chart or K-line) is a style of financial chart used to describe price movements of a security, derivative, or currency.

  • I trade candle stick charts based on support and resistance considering the momentum of the candle sticks and the confirmed levels.
  • Specifically, the pattern starts with a small bullish candle, followed by a larger bearish candle that appears to engulf the preceding candle.
  • This candlestick chart illustrates Ether’s daily price history over a three-month period.

This in essence, traps the late buyers who chased the price too high. The typical short-sell signal forms when the low of the following candlestick price is broken with trail stops at the high of the body or tail of the shooting star candlestick. Candlestick charts are a combination of multiple candles that a trader analyses to anticipate the possible price movements of a certain crypto token in the market. Simply put, candlestick charts are a technical tool that helps traders in compiling a complete visual representation of how the price of a token or tokens has moved over a given period. Another bearish candlestick to learn is the shooting star, which is basically a hanging man candlestick turned upside down. A shooting star has a short body at the bottom with little to no wick, plus a long wick at the top, as if it’s a star that leaves a trail while descending.

They are also valuable for confirming your predictions about market movements. However, it is worth mentioning that there is a lot that candlesticks cannot tell you. For instance, you cannot use them to learn why the open and close are similar or different. For example, groups of candlesticks can form patterns throughout forex charts and diagrams that could indicate reversals or continuation of trends. Candlesticks can also form individual formations, which could indicate buy or sell entries in the market. The morning star candlestick pattern forms at the bottom of a downtrend and is made up of three candles.

You can consider the crypto candlestick charts trading system as an individual crypto trading strategy, or you can use these tools in your strategy to increase your trading probability. Once you master the basics of reading candlestick charts, you potentially can start integrating them into your preferred trading strategy for better accuracy. To use the insights gained from understanding candlestick patterns and investing in an asset, you require a brokerage account. This indicates that longs were anxious to take proactive measure and sell their positions even as new highs were being made. Dark cloud cover candles should have bodies that close below the mid-point of the prior candlestick body.

What’s the size of the pattern relative to the other candlestick patterns?

The opcoming is confirmed by a series of the bullish reversal hammer patterns. For example, a hammer, an inverted hammer, a hanging man, a shooting star, a doji, and others. Below, I will describe basic types of candlestick patterns. There are also Doji candlesticks that mean market uncertainty. Doji often appears when the market is in the overbought/oversold zones, being a reversal pattern.

Bearish three-day trend reversal patterns

Thanks so much for all this, fantastic to find someone such as yourself so enthusiastic to share great your knowledge. This means the market can easily reverse in the opposite direction due to a lack of interest around the price level. You’ll notice larger bodied candles that move in the direction of the trend. Because the price closed near the lows of the range and it shows you rejection of higher prices.

Like a massive tidal wave that completely engulfs an island, the bearish engulfing candlestick completely swallows the range of the preceding green candlestick. The bearish engulfing candlestick body eclipses the body of the prior green candle. Even stronger bearish engulfing candlesticks will have bodies that consume the full preceding candlestick including the upper and lower shadows. These candlesticks can be signs of enormous selling activity on a panic reversal from bullish to bearish sentiment. Before the Western world created the bar and point-and-figure charts, candlestick charts were created in Japan more than 100 years ago. A Japanese man named Homma noticed that, although there was a correlation between rice price and supply and demand, trader emotions significantly impacted the markets.