Crypto Trading 101: A Beginner's Guide to Candlesticks

Besides the ability to brag about their newfound riches, both traders likely analyzed price action and investor emotions by using the candlestick charting style.

A candlestick represents the price activity of an asset during a specified timeframe through the use of four main components: the open, close, high and low.

The "Open" of a candlestick represents the price of an asset when the trading period begins whereas the "Close" represents the price when the period has concluded.

On the opposite is true of the open, which forms the bottom of the green candlestick and the top of the red candlestick.

The candlestick becomes "Bearish," typically red, when its current or closing price falls below the opening price.

If the 2-hour candlestick opens at a price of $10 and jumps to $13 an hour later, the shape of the candlestick will have drastically changed since opening.

Three of the most useful candlesticks for identifying a potential trend change or for gauging market sentiment are the "Doji," "Hammer" and "Shooting star."

The doji is a prime example of what traders mean when they say a candlestick represents human emotion or market sentiment.

Such price action signifies that at one point during the trading period sellers temporarily gained control but quickly gave it back and then some, for a bullish close to the candlestick.

A hammer spotted in a one-hour candlestick will have almost no impact on a 6-month long downtrend, whereas if the hammer formed on a 1-week long candlestick, its reversal impact would be much more significant.