Take a look at the image – that is a japanese candlestick (aka “candle”). Each one tells a story of price movement and is the basis of how to read cryptocurrency charts.
There are different types of charts, such as line and bar charts, but in the Cryptos4noobs course we will be using japanese candlesticks because we want the full picture of price.
Let’s break down its anatomy.
The colour is your first indicator as to what is happening. Each candle will tell you if price increased or decreased in value:
Green is an increase
Red is a decrease
Some platforms use white and black.
We are going to make it really easy and split this section into two distinct parts: Green and Red.
This candle is green and therefore tells us that price is increasing. You see the bottom of the green bar? That’s where price started. The top of the green bar is where it ended.
Now, what the hell are the sticks at either end of the bar? They are actually called wicks.
These indicate if price pushed lower or higher during the candlestick’s lifetime.
The lifetime of a candlestick will change depending on the timeframe you choose on your chart. In our example, the candle shows price movement over 12 hours.
So what the lower wick tells us is that price actually went lower than the entry point for some amount of time.
However, it also shows us that price went higher – there is a wick poking out the top as well.
Our candlestick has a ‘lifespan’ of 12 hours, so wherever price is at the start and end of those 12 hours will determine the parameters of the candle’s body.
A candle’s lifespan can be changed on a chart’s interface – this gives you a more detailed look at how price moves!
Now, if the candlestick is red, it is telling us that price decreased. The top of the red bar is now our entry and the bottom of it is our exit.
The wicks at either end tell a similar story. The top wick tells us price increased above the entry point for a time, whereas the lower wick tells us price went lower than the exit price.
In some instances, you will see a candle with just one wick, or even none. You will typically see this when price is moving strongly in one direction.
Visually, Japanese Candlesticks are the easiest and quickest way to extract information for beginners. There are other options, such as a line chart or bar chart, but you miss out on useful information.
Ultimately, it is your preference on how you want to read cryptocurrency charts. So, by all means, try some different types of charts out if you are curious!
Support and Resistance Areas
You will learn more about these in the upcoming courses, but the need-to-know is this: these are areas where price struggles to push through.
A great example of this is the $20,000 limit that Bitcoin hit in December of 2017.
Bitcoin pushed up, couldn’t break it, and subsequently fell away. That $20,000 is a Resistance Area for BTC/USD. It literally resists and forces price down.
Now, Bitcoin also had a Support Area in December 2017: $13,000. What is a support area? Well, it is an area that also forces price away, but this time it supports it and pushes price up.
These SR areas are where price struggles to move through unhindered. You will learn how to utilise these areas in your trading, but for now you just need to know their basic function.
Trend lines are actually just a line that you can draw onto your chart. It performs the same purpose that a ruler performs – providing a straight edge.
In the example, price is pushing up – can you spot a trend in this picture?
If you look at this image, the diagonal line is what we call a trend line. These are drawn onto a chart whenever you notice a particular trend occurring.
There are three low points at which price dips and by simply looking at the chart you can see that these three points look to almost lineup with each other.
This is where the trend line comes in handy. It is an extremely basic tool (it’s a line) that you can insert onto a chart to help you visualise trends.
Based off this example, you could potentially take a trade whenever price comes to the trend line. It identifies something quite interesting: a dynamic Support or Resistance Area.