What is a candlestick chart?

A candlestick chart is a graphical representation of the price of an asset for a given timeframe. It’s made up of candlesticks, each representing the same amount of time. For example, a 1-hour chart shows candlesticks that each represent a period of one hour. A 1-day chart shows candlesticks that each represent a period of one day, and so on. A candlestick is made up of four data points: the Open, High, Low, and Close (also referred to as the OHLC values). The Open and Close are the first and last recorded price for the given timeframe, while the Low and High are the lowest and highest recorded price, respectively.

Candlestick charts are one of the most important tools for analyzing financial data. Candlesticks date back to the 17th century Japan but have been refined in the early 20th century by trading pioneers such as Charles Dow. Candlestick chart analysis is one of the most common ways to look at the Bitcoin market using technical analysis.

What is a candlestick chart pattern?

Technical analysis is largely based on the assumption that previous price movements may indicate future price action. So, how can candlesticks be useful in this context? The idea is to identify candlestick chart patterns and create trade ideas based on them.

Candlestick charts help traders analyze market structure and determine whether we’re in a bullish or bearish market environment. They may also be used to identify areas of interest on a chart, like support or resistance levels or potential points of reversal. These are the places on the chart that usually have increased trading activity.

Candlestick patterns are also a great way to manage risk, as they can present trade setups that are defined and exact. How so? Well, candlestick patterns can define clear price targets and invalidation points. This allows traders to come up with very precise and controlled trade setups. As such, candlestick patterns are widely used by Forex and cryptocurrency traders alike.

Some of the most common candlestick patterns include flags, triangles, wedges, hammers, stars, and Doji formations.

What are support and resistance?

Support and resistance are some of the most basic concepts related to trading and technical analysis.

Support means a level where the price finds a “floor.” In other words, a support level is an area of significant demand, where buyers step in and push the price up.

Resistance means a level where the price finds a “ceiling.” A resistance level is an area of significant supply, where sellers step in and push the price down.

Now you know that support and resistance are levels of increased demand and supply, respectively. However, many other factors can be at play when thinking about support and resistance.

Technical indicators, such as trend lines, moving averages, Bollinger Bands, Ichimoku Clouds, and Fibonacci Retracement can also suggest potential support and resistance levels. In fact, even aspects of human psychology are used. This is why traders and investors may incorporate support and resistance very differently in their individual trading strategy.