To begin trading, it's essential that you have a basic understanding of the field of technical analysis or "TA." In an overarching sense, technical analysis is the charting and study of groups of what are called "candlestick patterns."
What is a candlestick pattern?
A candlestick pattern is a graph of the price movements of an asset or commodity (including cryptocurrencies) in the shape of green or red candles with varying lengths of wicks and bodies. Typically, candlesticks are colored green when they represent positive (upward) price movements and red when they represent negative (downward) price movements.
These patterns tend to be tied to more short-term rather than long-term price movements, which you can easily see on in the middle of your trading interface: candlestick patterns are displayed on both the Price Chart tab and the TradingView tab.
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Where do candlestick patterns come from?
Candlestick patterns come from rice traders in Japan in the 1870s. One trader in particular, Munehisa Homma, discovered that the market movements of rice were driven heavily by traders' acting on their emotions. Therefore, he incorporated shaded candles to represent significant negative emotions driving prices and unshaded candles to represent positive emotions driving prices.
While candlestick patterns began in this particular commodity market, they've now moved on to essentially all other investment markets.
How many candlestick patterns are there?
Generally, 42 patterns exist, all of which have been developed by practitioners of the field of technical analysis over time. Some simply hint that the price of an asset is trending upward based on its recent movements, while others bring far more complex conclusions.
Below is an example of a simple candlestick pattern called the bullish engulfing pattern, which traders often take as a strong indicator that an asset is trending significantly upward in the near future.
What is a candlestick chart?
A candlestick chart is a group of candlestick patterns that represent, for example, Bitcoin's historical price movements over the course of an hour or more. Depending on an asset's price movements, the chart may include more green or more red candlesticks.
On your NBX account, you have two choices of candlestick charts, one of which comes from NBX and the other which comes from TradingView but still applies to NBX's markets. As mentioned here, the candlestick charts related to these tabs can be broken down into 1 day, 6 hours, 1 hour, 15 minutes, 5 minutes, or even a minute-by-minute interval, depending on what you’re interested in seeing.
Therefore, with NBX, you have a wide array of options related to your TA needs.
How do I use a candlestick chart?
Just as we've mentioned above, candlestick patterns can be used to represent the price movements of a cryptocurrency like Bitcoin during a particular, short-term period in time.
Basically, traders use candlestick charts to help them attempt to time when to enter or exit a market based on whether they think an asset's price is trending upward or downward. With this under consideration, it's important to keep in mind that like all other fields related to trading, TA is not an exact science, especially since it measures the aggregated emotional responses in markets. Therefore, it's best to think of it as one helpful tool in your trading arsenal.
Over time, we'll dig deeper into candlestick charts and TA in the Knowledge Base, but for now, consider this your window into the foundations of how it works.