Candlestick Charts, Depth Charts, Trading walls + Day Trading, Swing Trading & Position Trading Explained

This is one of my Crypto Jargon series where I’m breaking down the complex crypto-related terminology.
In this post I’ll explain what are Candlestick Charts, Depth Charts and Trading Walls
will also discuss different types of trading such as Day Trading, Swing Trading and Position Trading.

Let’s start first with Candlestick charts.
These originated in Japan in the 18th century when the Japanese rice trader Munehisa Homma discovered that, while there was a link between price; and the supply and demand of rice, the markets were strongly influenced by the emotions of traders.
Candlesticks show that emotion by visually representing the size of price moves with different colors. Traders use the candlesticks to make trading decisions based on regularly occurring patterns that help forecast the short-term direction of the price.
A candlestick shows the market’s open and close price as well as the high and low price for a fixed time period. If that period is a day, we call it a day candle, if the parameters are set to one hour, it’s an hourly candle. It can also be a weekly or even monthly period or as little as 1minute, 5min, 15 min and so on. If you are a position trader, you would not care much about these smaller timeframes ( you would rather analyse the daily, weekly or even monthly candlesticks) but if you are a day-trader, you would care about the smaller timeframes as you would be working within short time limits.
I’ll get to the types of traders in a moment, but first:
Let’s use the daily candlestick and give an example of what it looks like and how we can read it.

The candlestick has a wide part, which is called the “real body.”
This real body represents the price range between the opening and closing prices of that day. When the real body is filled in green or black, it’s a bullish candle, meaning the close was higher than the open so the prices went up that day. If the real body is red or white, the close was lower than the open. In other words, the prices went down that day, they were higher when the trading day started than when it ended.
Just above and below the real body are the “shadows” or “wicks.” The wicks show the highest and lowest price points of that day’s trading. If the upper shadow on a down candle is short, it indicates that the open that day was near the high of the day or when it’s much longer, it shows us that the prices went up much more during the day but the day closed at price that was far below that high. In short, the wick of the candle extends to the highest and lowest price of that day while the full body indicates the price range between the open and close for the day.

There’s a lot of activity during a day and all that activity is represented by that one candle. If we look at this smaller timeframe – these are all 15 minute candles over a period of 1 day – we see a much more detailed picture on what is going on throughout that day, the price is going down and up and down again, multiple times during that day… so all of this information is squeezed here in the one-day candle. The main body shows us the opening and the closing price and the wick tells us where the highest and lowest price levels were and the length of that wick compared to the length of the body is also indicative, which is why we have some really short candles – indicating there wasn’t much volatility in the price range that day… or it can be a very long candle, when the prices were moving quite a lot with a larger margin.

This is why there are many types of candlesticks such as the doji, evening star or morning star, a hammer, hanging man and many others. Candlesticks are really containing a lot of information about the trading activity of their timeframe and this is why they are the most widely used method of technical analysis.

There are other charts that traders use besides candlestick charts and one of these is called a Depth Chart. You will find it in every crypto exchange and it has one main use: to show you the volume of orders on that trading pair. It is a graph showing how many limit-sell orders and limit-buy orders are currently open on that exchange.
That’s the main purpose of the Depth Chart – it shows the cryptocurrency’s liquidity at that exchange.

Buy-orders are displayed in green and the sell-orders in red.
By reviewing the Depth Chart, you will find the likely market appetite for a certain buy or sell price. The higher the volume of orders at any given price, the higher the amount of green or red field will be. When there’s an extremely high volume of orders at a certain price level, the graph can resemble a wall, which is referred to as a trading wall.
If a wall is created by a large buy order, it’s called a “buy wall,” and if it represents a sizable sell order, it’s called a “sell wall.” In general terms these walls are called “trading walls” or “bid walls.” On some occasions there can be “fake walls” – meaning that whales or other market manipulators are placing such orders temporary, only to sway other traders into a certain direction and move the market.
Fake trading walls often disappear shortly after the targeted price movement happens but before they get executed and they are only relevant to day traders since they are the ones who trade within very short timeframe.
Now let’s take a look at a few types of traders. Starting with Day Traders.
Day traders look for small price shifts minute-to-minute, and do their best to maximise their profits (or at least minimise their losses) by making several transactions a day—but without leaving any open orders overnight. In other words, ‘Day Trading‘ is the practice of buying and selling an asset with the beginning-to-end process of the trade taking place all within 24 hours. Day traders depend on “micro-trends,” which are minuscule shifts in market value, as compared to position traders, who may observe the trends of an asset over several days, weeks or months before taking action.

Another style of trading is Swing trading.
The swing trader attempts to capture gains in an asset over a period of a few days to several weeks. In this respect the difference between a day trader and a swing trader is mainly in the time frame.
Swing traders and day traders primarily use Technical Analysis but may also utilize Fundamental Analysis when searching for trading opportunities and they are not concerned with the long-term value of a given asset.
Swing trading is mainly used by at-home traders and some day traders. Large institutions trade in sizes that too big to move in and out quickly while the individual trader is able to exploit such short-term price movements without having to compete with the major traders.

Position Trading is quite different to the above in a sense that it involves much longer time frames. It is almost like an investing strategy where open positions are held for an extended period. By extended I mean months or even longer.
Position traders will hold their asset for a while with the expectation that it will appreciate in value. They are less concerned with short-term fluctuations and the news of the day unless it impacts the long term view of their position. In this regard, they do not trade actively, many of them place less than 10 trades a year. Position traders are, by definition, trend followers. Their core belief is that once a trend starts, it is likely to continue. Only ‘buy-and-hold’ long-term investors, who are classified as passive investors, hold their positions for longer periods than the position traders.

These and many more terms are explained in my eBook “Crypto Jargon A-Z: definitions of crypto terminology” which is the most up-to-date publication of its kind. With over 700 terms, acronyms and trading slang, it contains everything related to cryptocurrencies and blockchain tech: a must-have guide for every crypto investor. It’s an Amazon bestseller and it’s available for Kindle here.