How to Read Crypto Charts
Crypto charts are useful trading tools, but they can be difficult to understand for new investors. Learn how to read crypto charts and candlesticks in our guide.
Candlestick charts show price movement over time using open, close, high, and low data.
Body length shows trend strength; longer bodies mean stronger buying or selling.
Wick length indicates volatility; longer wicks mean more price movement.
Body-to-wick ratio helps spot market trends, reversals, or indecision.
How to read crypto candlestick charts
Depending on the crypto charting tool you’re using, the features may vary a little, but they’ll all share some common ground. For starters, they’ll look something like this:
So, what are you looking at?
Each 'candlestick' - that is, the vertical bars in red and green - is a set of data relating to the price of a given asset, over a given time frame. The colors represent whether the price was trending upward or downward:
Red candlestick: The price of the crypto closed lower than it opened. Also known as falling candlesticks or bearish candlesticks. In some other markets, these are black instead of red.
Green candlestick: The price of the crypto closed higher than it opened. Also known as rising candlesticks or bullish candlesticks. In some other markets, these are white instead of green.
Every candlestick on the chart is made up of four pieces of data:
Open price
High price
Low price
Close price
There’s a lot of jargon around candlesticks, but here are the basics:
Body: The distance between the open and close price. It’s the thicker block of color.
Wick: The distance between the body and the high or low price. It’s the thinner block of color. These are also known as shadows.
Range: The distance between the high and low. It’s the entire candlestick.
As you can see in our example above, the length of candlesticks varies a lot, from long to short. These different lengths and the patterns traders can spot in them can indicate market trends and potential investment opportunities.
There are a few factors to consider here, so let’s break them down.
Read next: Best Crypto Charts
The timeframe of a candlestick chart
The timeframe on a candlestick chart determines the time span that each candle represents. Different chart timeframes offer unique advantages and are used by traders for different trading strategies.
Shorter timeframes, usually 1-15 minutes, are most commonly used by day traders to capture quick price movements. They provide more granular detail, but can also contain more market noise or false signals.
Longer timeframes, such as four-hour, daily, and weekly charts, are used by swing traders or long-term investors to identify broader trends more clearly.
Often, both types of timeframes are used in conjunction: longer timeframes to identify trends, and shorter, minute-by-minute timeframes for precise trade entry and exits.
Length of the candlestick body
The body of the candlestick shows the difference between the open price and the close price of a given cryptocurrency. The longer the body, the more drastic the change in price.
A short green body indicates a small price increase, while a long green body indicates a more drastic and faster price increase. This can indicate that investors are buying, as the prices are being driven up, however drastically.
Conversely, a short red body indicates a small price decrease, while a long red body indicates a more drastic price drop. This can indicate that investors are selling, as the prices are being driven down.
Patterns matter too. If the size of candlestick bodies are increasing over a period of time, the price trend is accelerating. Similarly, if the size of candlestick bodies are shrinking over a period of time, the price trend may be decelerating or coming to an end. In the middle of this, if candlestick bodies remain relatively constant in size, this indicates price stability.
Of course, every now and then, there are sudden market changes. If there are sudden shifts in the size of candlestick bodies, for example, from long green candlesticks to long red candlesticks, this indicates a sudden shift in the market, usually due to strong market forces. An example of this would be following the collapse of FTX.
Length of the wicks
Wick length helps determine the volatility of a given crypto asset, in either direction.
The longer the wick, the more volatile the price. The shorter the wick, the more stable the price.
A long rising wick shows the price climbed rapidly that day, then dropped back down, while a long falling wick shows the price dropped rapidly that day, then climbed back up. Short wicks show the same trend but in a less drastic manner.
Volatility can happen in either direction, whether the price is increasing or decreasing. It’s understanding patterns or trends in the length of a wick and what they may indicate that’s important.
For example, a long rising wick may indicate an increased level of buying/selling high and potentially a peak, while a long falling wick may indicate an increased level of buying/selling low and potentially a bottom.
Meanwhile, short wicks tend to predict a healthier and more stable market. A candlestick with no, or a minimal wick, is a signal that the current market price is agreed upon by sellers and buyers.
Body-to-shadow ratio and position
Now you've got the basics of bodies and wicks, let's look at how to put them together.
Generally, the larger the body compared to the shadow, the stronger the trend. So, if you have a large green body with short wicks, you have a strong upward trend in price. If you have a large red body with short wicks, you have a strong downward trend in price.
You'll usually see a trend slowing down as the wicks begin to grow compared to the body. Small bodies with long wicks may indicate uncertainty about a price trend or a turning point in a price trend.
As well as this, the position of a body in relation to the wick(s) matters. A candlestick body may have both a rising and a falling wick of varying lengths.
A body with an equally long rising and falling wick may show indecision and uncertainty in a market, but ultimately stability as the price has opened and closed relatively close. While a body with a wick skewed in a particular direction may indicate a price trend despite volatility.
You can learn more about how to understand crypto charts in our guide to crypto chart patterns.
Understanding volume on candlestick charts
Volume can be represented in two different ways on a candlestick chart:
Separate volume patterns: The most common method of displaying volume is through vertical bars shown in a separate pane below the candlestick chart. Each bar represents the total amount traded during a specific timeframe.
Volume candlesticks: They display volume through the width or opacity of the candlesticks themselves. Wider or more solid candlestick bodies indicate higher trading volume, while thinner or more transparent candles represent lower trading activity.
Use Koinly to track your portfolio
Charts aren’t the only tools available to investors. Experienced investors also use portfolio trackers like Koinly, a read-only access portfolio tracker that’s secure and also works as a crypto tax calculator.
Koinly can help you keep track of your portfolio performance, including tracking realized and unrealized gains, and best of all, come tax time, Koinly can generate your tax reports for you. Sign up for free today.
