> Blog > What is a Candlestick in Crypto?

Published September 29, 2022

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With cryptocurrency trading more popular than ever before, it’s vital to understand what candlesticks are and how they work. Reading crypto candlestick charts will keep you from making blind trades at the wrong times.

A candlestick is a trading indicator that shows price action over time for any particular crypto. Each candlestick tells you four things about the cryptocurrency during that period of time:

  • The opening price
  • The closing price
  • The highest price reached
  • The lowest price reached

Candlesticks display data in a simple, easily interpretable way. Candlesticks that are green are considered bullish, because they close higher than they opened for that period. On the other hand, bearish candlesticks are red and close at a lower price than where it opened at.

While learning about candlestick types and the larger patterns they make, keep in mind that a candlestick is one of many measurements that should be incorporated into your analysis. Strong trading strategies rely on multiple indicators in tandem to help verify profitable trades.

Let’s dive deeper into what else a candlestick can tell us before looking at some bullish and bearish candlestick patterns.

Understanding Candlesticks

Bullish and bearish candlesticks

Candlesticks are a crucial component of a price chart. Since they measure the price data for a given asset, they provide the most essential information for understanding price action. So, how do you identify them?

First, identify the body of the candlestick. This is the wider rectangle section that represents where the price opened and closed at. If the candle is bearish (red), the top of the body represents the open while the bottom represents the close. Conversely, a bullish candle (green) opens from the bottom of the body and closes at the top.

In general, the longer the body of a candlestick is, the more bullish or bearish it is as well. Conversely, the smaller the body is, the less fluctuation there was in price during the given period.

Next, find the wick (or shadow) of the candlestick. Wicks are the thin lines that stick out of the top and bottom of some candlesticks.

Wicks tell us a lot about uncertainty. When wicks are short, it means there is more certainty in the cryptocurrency’s price direction. Long wicks indicate more uncertainty, due to a more volatile battle between buyers and sellers during that period.

The Importance of Crypto Candlesticks

Not only do candlesticks give traders the most crucial information to make informed trading decisions, but they can also be used to extrapolate on future price action. History does not repeat, but in trading, it often tends to rhyme. Traders around the world can look back on previous price action to make better informed decisions about its potential future.

Candlesticks also help traders read market emotions. Traders and investors can be sent through an emotional roller coaster in the market as they watch prices swing drastically up and down. With proper insight into candlesticks, you can identify how the market is feeling about a given price move.

Keep in mind, however, that candlesticks are not a crystal ball. Without a more holistic understanding of the macroeconomic context surrounding past and present price action, guessing on future price action can be futile.

Popular Candlestick Patterns

Because so many people watch candlestick charts for indications of trend changes in price direction, certain candlestick types have become beacons of incoming shifts for crypto traders.

Hammer

Hammer candlestick pattern

The hammer candlestick has a short body with a long wick underneath it (at least twice the body length). Hammers are considered to be bullish reversal indicators because they show seller uncertainty (long wick) and renewed buyer strength (candlestick closes much higher than the wick).

Shooting Star

Shooting star candlestick pattern

The shooting star candlestick is basically the opposite of the hammer. Shooting stars have a long upper wick that sits on top of a short body. They are a bearish reversal indicator because they signal to traders that while buyers were biting at first, the sellers ended up in control.

Doji

Doji candlestick pattern

The Doji candlestick represents a balance of uncertainty. Typically displayed as a tiny body with two wicks of equal length on the top and bottom of the body. Doji candlesticks leap out at veteran traders who know this is a sign that there is uncertainty. If you see a Doji, be on the lookout for a trend reversal in the near future.

While these three candlesticks are popular patterns to look for, most crypto candlestick patterns involve multiple candles.

Bullish Candlestick Patterns

Bullish candlestick patterns are a popular cue for traders to hit the buy button in anticipation of future price appreciation.

Bullish Engulfing Pattern

Bullish engulfing candlestick pattern

A bullish engulfing occurs when a red candlestick is followed by a larger green candlestick. The green candlestick should stretch farther above and below the previous red candlestick to be considered an actual engulfing.

Three White Soldiers

Three white soldiers candlestick pattern

Three green candlesticks for three days in a row are called the Three White Soldiers. The candlesticks should have longer bodies and short wicks. Bullish candlestick patterns like this are a great sign after a downtrend that could represent a reversal.

The Morning Star

Morning Star candlestick pattern

The morning star is another useful bullish candlestick pattern. It is an indicator that selling pressure is weakening. The pattern is a long red candlestick followed by a lower short candle and a long green one.

Bearish Candlestick Patterns

Bearish patterns are equally important to look out for, as ignoring them could eventually lead you right off a candlestick cliff. Bearish candlestick patterns tend to arrive at the end of a bullish period once buyers have had their fill and the price looks less appetizing.

Bearish Engulfing Pattern

Bearish engulfing candlestick pattern

A bearish engulfing pattern is characterized by a larger red candlestick engulfing the green one, pointing towards an end to the old trend and the beginning of a bearish pattern.

Three Black Crows

Three black crows candlestick pattern

Another bearish pattern includes the Three Black Crows. The bearish version of the Three White Soldiers, the Three Black Crows consist of three long red candlesticks with short wicks. It signals to traders that buyers have exited the crypto and sellers have the reins.

Evening Star

Evening star candlestick pattern

The inverse of a morning star, the evening star is also found towards the end of a bullish run. It involves three candlesticks: a long green candle, a short candle in the middle and a long red candle at the end. When the last red candlestick is the same size or bigger than the initial green candle, it is a strong indicator of an incoming trend reversal.

Crypto Trading with Candlesticks

Understanding candlesticks in crypto is fundamental to the success of any crypto trader. Although we have gone over some of the more popular candlesticks and patterns, this is by no means an exhaustive list. There is a wide range of well-established patterns tracked by traders globally, and as a trader grows in experience, so does their knowledge of candlestick patterns.

To learn more about crypto trading strategies, be sure to check out the FTT DAO blog, and follow us on Twitter to keep up with the latest FTT news and crypto education.

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