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Candlesticks Vs Order Books: Which is Better?

There are many strategies that investors use in calling trades. In the broad sense, investors can determine the future price of financial analysis through fundamental analysis or technical analysis. While big spenders and long-term holders are mostly concerned with the fundamental factors driving the price of an asset, scalpers and short-term traders are interested in making from profit from every day by and sell. They use analytical tools and information to determine the price movement of a financial asset. Some of these tools include candlestick charts and order books. In this article, we want to take a detailed look at order books and candlestick charts. In the end, you will be able to determine the best one for your trading strategy.   

What is a candlestick chart?

A candlestick chart shows the price of a particular financial asset for a defined period. One candlestick shows the opening price, highest selling price, lowest price, and closing price of any financial asset within a defined period. The candlestick is a leading price indicator and it shows bullish and bearish reversals. It is a graphing technique that originated from Japanese rice traders in the 18th century. With the candlestick, you can have a good understanding of how a coin behaved in the particular time frame and draw analysis for your next trade. Most charting platforms use green to indicate bull candles and red to indicate bear candles.  

How to trade candlesticks

You can trade candlestick patterns by adopting different strategies. You can read the candles by observing the three-line strike, two black gapping, three black crows, an evening star, an abandoned baby, and so on. The three-line strike predicts higher prices with an 83% accuracy rate while the two black gapping predicts price with a 68% accuracy rate. The three black crows is a bearish reversal pattern that predicts price with a 78% accuracy.

What is an order book?

An order book is an electronic report that shows the buy and sells activity of a particular financial asset in a trading platform. A cryptocurrency exchange can maintain an order book by keeping well-detailed documentation of the buy and sell orders along with the bid and ask requests. Most times, order books only contain the orders which have not been fulfilled yet. They reflect the specific prices that traders are willing to sell or buy financial assets. These types of orders are known as limit orders and orders placed to be fulfilled using current market prices are known as market orders.  

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How to trade order books

Before you begin trading order books, you should have a little background knowledge. The main parameters of trade are outlined every time. The number of a particular crypto asset and the price at which that trader is willing to trade it is recorded by an exchange. For instance, let’s say you want to sell one BTC at 60,000 dollars, the exchange looks for someone planning to buy that amount at 60,000 dollars and then sells it to them. If the amount of all buy orders for BTC is more than 60,000 dollars, then your order is fulfilled in full. However, if it doesn’t, your order is added to the order books Traders can analyze the order books to get behind the psychology of the whales as they are mostly the ones that move the market.

Summary

If you are looking to choose between order books and candlestick charts, we advise that you don’t. The combination of candlestick charts and order books will allow you to make the most effective trading decision. You can easily see the buy and sell orders in the order book and then analyze the price movement of the asset with the candlesticks. If you do this right, you can tell the future price of an asset.

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