Simple Guide On How Do Candlestick Charts Works

How do Candlestick Charts Works

As a newcomer to trading, you have always wondered if there’re ways you could understand how this whole game works. Most especially the trading chart, understanding the market is a bit daunting, trading and investing is a risk game of probability but understanding how the candlestick work can give you a better headstart.

I want to make it simple here, and in this tutorial, you will learn how do Candlestick Charts Works on Binance, new traders, rely on their gut feeling and make their investment based on their intuition.

What is a candlestick chart?

A candlestick chart is a type of financial chart that graphically represents an asset’s price moves for a given timeframe. As the name suggests, it’s made up of candlesticks, each representing the same amount of time. The candlesticks can represent virtually any period, from seconds to years. 

The candlestick chart start far back in the 17th Century in the Japanese by rice trader called Homma, this went on, and with time and it got better and better. Homma’s findings were refined by many, most notably by Charles Dow, one of the fathers of modern technical analysis.

You should also know that the candlestick is also used by experts to analyze other types of data and also facilitate the financial analysis of the market and they also help traders gauge the probability of outcomes in the price movement.

How do Candlestick Charts Works

You will learn how about Open, High, Low, Close price point and how it works.

  1. Open: The first recorded trading price of the asset within that particular timeframe.
  2. High: The highest recorded trading price of the asset within that particular timeframe.
  3. Low: The lowest recorded trading price of the asset within that particular timeframe.
  4. Close: The last recorded trading price of the asset within that particular timeframe.
Candlestick anatomy
Now you should understand the chart a bit from the above image

The data set is referred to as the OHLC values, the Open, High, Low, and Close determine how the candlestick looks like.

From the above image, the distance between Open and Close is referred to as the body while the distance between the Body and High/low is known as the wick or shadow. The distance between the high and low of the candle is called the range of the candlestick. 

How to read candlestick charts

The candlestick is quite simple to understand, traders prefer candlestick representation more than the conventional bar chart and lines.

In practice, whenever the candlestick is long just know there was more pressure on buying and selling at that timeframe. If the wicks on the candle are short, it means that the high (or the low) of the measured timeframe was near the closing price.

Note that the color and setting may vary, but when the body is green, the asset closed higher than it opened. Red means that the price moved down during the measured timeframe, so the close was lower than the open. 

You know there are things the chart stick does not show you, the chart stick won’t make an actual analysis for you, For instance, candlesticks don’t show in detail what happened in the interval between the open and close, only the distance between the two points (along with the highest and lowest prices).

For example, while the wicks of a candlestick do tell us the high and low of the period, they can’t tell us which one happened first. Still, the timeframe can be changed in most charting tools, allowing traders to zoom into lower timeframes for more details.

Wrapping things up

Candlestick charts are one of the most fundamental tools for any trader or investor and now that you’ve understood the concept you have taken a great step as a trader.

Hope this article was helpful, let’s know about your comments below.

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