How would you determine whether to sell some crypto assets or increase your cryptocurrency investments? You need to know how to read crypto charts if you want to succeed as a crypto investor. Cryptographic representations of past prices, volumes, and time intervals are called crypto charts. The charts, which are used to identify investment opportunities, create patterns based on the historical price movements of the virtual currency. We'll discuss crypto charts today and explain what all those lines, figures, and strange shapes mean.
How to Read Crypto Charts - Important Terminology
Cryptocurrency is regarded as a high-volatility asset, which causes its price to change wildly and unpredictably. So it's imperative to understand how to read crypto charts. Beginner traders who want to start making money in this gold mine should pay special attention. We'll thus give you a brief explanation of the various lingo used in a crypto chart. We'll go over everything later, so don't worry.
- Price Action: The movement of an asset or security's price over time, plotted on a chart.
- Price Support: A point in the market where the price is less likely to drop below due to precious demand or price action.
- Price Resistance: A point in the market where the price is less likely to break above due to previous demand or price action.
- Trend line: A line indicating the general price direction of a chart.
- Formation: When a financial chart moves in such a way as to create a recognizable pattern. Patterns to signal trading opportunities.
- Breakout: When the asset's price breaks through a pre-determined trend line.
- Pump or Bullish: The price is going up.
- Dump or Bearish: The price is going down.
- Long Position: A trade that is predicting that the price will go up.
- Short Position: Entering a trade position predicts the asset to go down.
- Candlestick Chart: to determine possible price movement based on past patterns.
- Line chart: to get an insight on crypto price changes over a given period of time represented by a line.
- Logarithmic Scale: Based on the percentage change in the price of the underlying item, a logarithmic price scale shows price spacing on the vertical or y-axis.
- Volume indicator: Changing of trading - volume over time
- Hammer: the price trend of a security will fall below its opening price
- Reverse Hammer: acts as a warning of a potential bullish reversal pattern.
- Hanging Man: a bearish reversal candlestick pattern that occurs after a price advance.
- Shooting Star: It alerts investors to the impending upward reversal.
- Market Depth: the ability of a market for a specific cryptocurrency to sustain large orders (buy or sell) without its price moving significantly.
- Support: indicates the lowest price
- Resistance: indicates the highest price in a bull market
Crypto Chart Reading - Technical Analysis
The term “technical” refers to the analysis of an asset's previous trading activity and price changes. Technical analysts claim that they could be helpful indicators of future changes in an asset's price. It applies to all financial instruments having historical trade data, including stocks, futures, commodities, fiat money, and digital assets.
Charles Dow, the co-founder of Dow Jones & Company and the founder of the Wall Street Journal, was the first to popularize technical analysis. Dow's thoughts were spread among several Wall Street Journal editorials. The concepts were gathered after his death to produce what is currently referred to as the Dow theory. Through years of study, technical analysis has now developed to encompass the patterns and signals that we are familiar with today.
Whether the market has valued all information that is currently available about a particular asset determines the validity of the technical analysis. It suggests that the item is fairly valued in light of such data. Market psychology-based traders who use technical analysis think that history will eventually repeat itself. Along with this, the benefits of technical analysis in crypto trading are huge that can help traders learn & make more money from the markets.
Reading Crypto Charts - All About Timeframe
Technical analysts use historical data and metrics to assess market movements, and one fundamental way is to read charts. At first glance, it can be intimidating to read crypto charts with all these disorienting lines and curves, but don't worry. If you know where to start, it's not that difficult to digest, and I'm here to show you every effective trick.
Different time frames can be used to illustrate cryptocurrency charts. You can decide whether to sort a graph for 15 minutes, an hour, 24 hours, a week, or the duration of a project, depending on your goals. It also illustrates your trading approach. Day traders frequently focus on brief periods so they can take advantage of the best opportunities within the same day. To spot price changes, swing traders may want to look at a longer time frame, like a few days or a week. Long-term investors could consider time frames of months or years.
Crypto Chart Patterns - What is Line Chart
You should become familiar with the numerous ways to visualize cryptographic charts. Price can be shown as a single line that just shows price changes throughout the given period.
There are two categories of line charts: the arrhythmic scale (also known as the linear scale) and the logarithmic scale. The log scale depicts the reversal in percentages, whereas the linear scale shows price changes as absolute values.
These two lines can have a lot in common. The vertical scale is the only distinction. While the price scale in log charts is divided by percentage changes, the price scale in linear charts is cut off equally. You ought to be able to identify which one you are viewing. The default view is frequently a log chart since it more accurately captures the trend and amplitude of the entire price.
The volume indicator, which shows how much cryptocurrency has been traded during that time, is located below these charts. Volume indicators can aid in creating the most detailed picture of the market when used in conjunction with a price chart. If you observe that both the price and the volume are rising, it can just be a sign that buyers are swarming the market and that the rise may be continuing. On the other hand, it indicates that traders are still wary of a bubble if the price increases but cannot increase purchasing power.
How to Read Crypto Charts - The Dow Theory
The Dow Theory provides a high-level explanation of market patterns and their normal behavior, which is a most importent thing to know when reading for " How to Read Crypto Charts". It states that the market takes everything into account when setting prices. All current, historical, and future information about the stock is reflected in the asset pricing. This implies that a market analyst can concentrate on a coin's price rather than on every factor affecting its price. Market fluctuations for cryptocurrencies follow specific patterns. It is feasible to forecast market behavior by spotting market patterns.
The Dow Theory is based on six key precepts:
The Market Moves in Three Ways
The major movement of a market is its main motion. It is the market's dominant trend and can persist for a year to several years. Bullish or bearish movement can be the primary trend.
The term “medium swing” refers to a market's secondary or intermediary action. This is what takes place during a medium length of time, which can range from ten days to three months. The primary price change is used to measure trends in the medium swing.
The term “short swing” refers to a market's modest change. The market's short-term speculation is known as the short swing.
There Are Three Phases to the Main Market Trends
A market trend has three stages, which are
1. The accumulation phase - The buying or selling of the coin against the prevailing view of the market occurs during the accumulation period.
2. The public involvement phase - Sometimes referred to as the absorption phase, is when the rest of the market begins to imitate savvy investors.
3. The distribution phase - The distribution phase follows the absorption phase, according to conjecture. The market is starting to see knowledgeable investors disperse their holdings.
As Soon as New Information Becomes Available, the Market Adopts It.
The asset's price is adjusted to reflect any fresh information. The value of an asset is a precise representation of the hopes, fears, and expectations of the market. The market price incorporates variables like changes in interest rates, predictions of earnings and revenues, important elections, etc.
Average Stock Prices Must Agree With One Another
A rise in one firm should increase the other company if the two businesses or industries are causally related. If the performance of one firm increases while that of the other declines, this could be an indication that the market trend is about to change.
Trends Are Validated by Volume
The number of shares left on the market should rise in tandem with an increase in price during an uptrend. In a decline, the volume ought to fall along with the price.
Trends Continue Until It Can Be Proven That They Are Over
Despite “market commotion,” the market is still trending upward. It might be challenging to find concrete evidence of a trend's reversal.
Analyse Crypto Charts - Things About Market Depth
To see the supply and demand of the present market, you can look at a market depth to analyse crypto charts more efficiently. A depth chart is a useful tool for determining the current supply and demand for cryptocurrencies across a variety of values. It is a visual representation of an order book, which is a structured list of open buy and sell orders for a certain cryptocurrency at various price points.
An illustration of a depth chart is shown below:
While depth charts might vary between cryptocurrency exchanges, they often include the following elements:
- The bid line shows the total amount of buy orders (bids) placed at each price level. A green line on the depth chart's left side serves as its representation.
- The total value of the sell orders, or “asks,” at each price point is shown on the ask line. A red line on the depth chart's right side serves as the indicator.
- The different prices at which buy and sell orders are being placed are displayed on the horizontal axis.
- You can see all the buy limit orders (also known as “bids”) that have been submitted on the left (in green). This is the bid side of the order book.
- You can see all the sell limit orders (also known as “asks”) that have been placed on the right side (in red). This is the ask side of the order book.
- The present market price serves as a link between the two sides. To have a better look at the given price and sold or bought amount, you can move your cursor wherever.
- The vertical axis displays the number of orders made at each price level for a coin.
- Using a depth chart, supply (selling interest) and demand are shown (buying interest).
- The term “depth” in a depth chart refers to a market's capacity to accommodate sizable orders (buy or sell) without the price of that particular cryptocurrency drastically changing.
- An order book has more “depth” if there are more outstanding orders on both sides of it. The “depth” increases as there are more open orders.
- If the green side is greater than the red side, this means there is much more purchasing interest (below the present price) than selling interest (above the current price).
To identify market patterns and project future performance, trend analysis examines financial statements. To find economic patterns, data is gathered from records and plotted on a graph. This technique's objective is to evaluate how a market has changed over time.
The three main trends to be aware of are listed below:
A bull market trend, often known as an uptrend, shows that the financial markets are rising. Any of the following could apply:
- Stock prices and asset prices are rising.
- It is a period of economic expansion.
- There are more jobs available than before.
- The economic climate is improving as the investment cycle gets underway.
Positive adjustments to a company's business strategy or macroeconomic security may occur together with uptrends. Higher peaks and troughs, or high points and low points on a graph, in the data over time, are how financial analysts describe uptrends.
a bear market, which is another name for a slump in the financial world. It might suggest the following:
- The financial markets are falling.
- The economy's size and the worth of stocks and other assets could both decline.
- Companies may shut down or reassess their business models in response to a decline in revenue.
- Companies could look for novel strategies to stay competitive.
Even though prices may fluctuate, a downtrend develops when there are fewer peaks and troughs in the data over time.
When the prices of stock shares or other assets are not going sharply higher or downward and are quite stable, this is known as a horizontal trend or sideways trend. Several outcomes are possible as a result of this trend:
- It may be difficult for investors to forecast which way this trend will go and whether now is a good moment for their clients to invest.
- It's possible that financial experts won't be able to predict either short- or long-term market events.
- Governments may support an upswing and expansion of the economy.
Crypto Charts Reading - Different Techniques and Indicators
You can't only look at the line chart or candlestick chart in one day. So we'll give you a few extra tools and indicators to assist you to spot the trend over a specific time frame.
- Moving averages are trailing technical indicators that even out previous price movements. Additionally, they show where the degrees of support and resistance are. The moving average serves as resistance when the price is below it and support when the price is above it. The support and resistance levels for long-term moving averages are typically greater than those for short-term moving averages.
- The simple moving average (SMA) is the average closing price of a given asset over a predetermined number of days. For instance, combining a stock's values over 20 days and dividing the result by 20 will give you the stock's 20-day SMA. SMAs are potential indicators of the following:
1. Support, or the point below which a stock's price finds it difficult to move because purchasers are trying to profit from the lower price. An SMA serves as a bottom when it functions as a support indication, running below the current stock price; when the stock price tests the support, it normally rises.
2. Resistance, or the price level that a stock's price finds it difficult to surpass because of the volume of buyers wanting to sell at that price. When an SMA serves as a resistance indication, it rises above the price of the underlying security and serves as a top; when the security price tests the resistance, it normally declines.
- The moving averages convergence/divergence (MACD) is calculated by subtracting the 12-day and 26-day Exponential Moving Averages, or EMAs. A positive MACD line above the zero line indicates. Otherwise, it is not good. Additionally, the MACD line above the signal line indicates the entry point. Opposite circumstance means you need to leave.
- The Bollinger Bands indicator comes next, and it also uses the simple moving average. The standard deviations around the moving average are taken into account while creating the upper and lower bands in the Bollinger Bands. When the moving average line approaches the upper band, the market is overbought. The other circumstance suggests an oversold condition. The coins are more erratic and their price swings are bigger the wider the bands.
- The relative strength index (RSI) is the final indicator we need to discuss. Theoretically, when the RSI line crosses the upper or lower line, it signals that there are too many buy or sell orders in the market. The trend will then likely turn around and drive the price back to its equilibrium point. As a result, when the RSI drops below 70 and the market appears to be overbought, it is time to sell. On the other hand, it's appropriate to buy when the RSI rises above 30 and the market is oversold.
How to Read Crypto Charts - Understanding Candlesticks
Candlestick patterns are another type of tool to understand for reading crypto charts. Candlestick charts offer far more detailed information, including not only price changes and volume changes but also the opening and ending prices, as well as the session's highest and lowest points. Candlestick dashboards with successive columns filled in green and red are very common. Red represents a decline, whereas green represents an uptrend.
Similar to the line and bar graphs, cryptocurrency candlestick charts display time across the horizontal axis of access and private data on the vertical axis. The primary distinction is that candlesticks indicate whether and to what extent the market's price movement was positive or negative during a specific period.
A candlestick consists of a body and wicks. Each candlestick's body indicates its starting and ending values, while the top wick shows how high and how low the price of a coin is over that time, respectively.
Examples of candlesticks and chart patterns that traders use to forecast price changes are provided below.
Shooting Star Candlestick
A bearish pattern known as the shooting star candlestick typically manifests near the peak of an upward price trend. This candlestick has a long wick that rises upward from a short body that is located at the bottom. Its red color indicates that although an asset's price reached higher values along the road, it slightly declined by the end of the trading period.
Experts take this as a signal that a sell-down is about to occur since there is resistance to the price rising further. To put it another way, many traders choose to sell in anticipation of a potential decline in prices.
Inverted Hammer Candlestick
The inverted hammer candlestick resembles a shooting star candlestick, however, due to its green tint, it is bullish rather than bearish. Here, the candlestick demonstrates that the price reached higher prices along the way and then marginally increased by the end of the trading period.
Some analysts believe that the appearance of this candlestick after a price decline is a hint that the price may be going to increase because it often denotes that there is a strong buying demand at that specific time.
Head and Shoulders in Crypto Charts
Users can find even more patterns by zooming out of individual candlesticks to view the broad crypto charts. One such pattern is referred to as "head and shoulders," and it is distinguished by three peaks or valleys that appear next to one another. This pattern gets its name because the second peak or valley resembles a "head" that overshadows its neighbors on both sides (the "shoulders").
On the left side of the chart, a green bullish head and shoulders pattern may suggest that the price of cryptocurrencies is set to increase.
A bearish head and shoulders pattern, such as the one outlined in red on the right, may, however, come before a downward price trend.
Wedges in Crypto Charts
A wedge pattern is a market trend that may be seen on an analytical chart and is frequently seen while trading assets like bonds, equities, cryptocurrency, etc. This pattern can either be described as an upward (rising wedge) or a downward (falling wedge) price trend mixed with a narrower price range.
Since cryptocurrency is one of the most widely traded assets, wedge patterns frequently develop in its charts. Swing traders and investors in cryptocurrency might profit from the rising wedge patterns that form between the converging lines before the breakout. Nevertheless, it would be advisable for the majority of traders to wait for a complete formation with a breakdown to occur before placing orders to short or sell.
The price is expected to increase after the upper trend line is broken. Before the breakout between the converging lines, swing traders may trade utilizing developing falling wedge formations; however, just like with rising wedge patterns, traders should try to wait for a complete pattern with an obvious breakout before they place an order to buy.
In the world of cryptocurrency, recognizing wedge patterns means spotting chances for bigger gains. When traders correctly predict a potential wedge pattern and are successful, they profit greatly. Wedge patterns are crucial to the craft of trading cryptocurrencies because of this.
For instance, after rising to approximately $14k in June 2019, Bitcoin began to display a falling wedge pattern. Those who could identify it and point it out kept their money; however, those who couldn't lost a sizable portion of it. Despite this, a few months later, Bitcoin's value increased once more, making up for the losses.
Wedge patterns often come in two different varieties. A rising wedge pattern is one of them, and a falling wedge pattern is the other.
Rising Wedge Pattern
However, it can also occur during a downward trend, this pattern typically emerges when the price of an item has been rising over time.
Falling Wedge Pattern
When a security's price has been falling over time, a wedge pattern may appear right before the trend's lowest point.
Why is Reading Crypto Chart Important?
Cryptographic charts provide a clear picture of the market's best opportunities. Therefore, it will always be advantageous for any trader to know how to read crypto charts. Investors can use technical analysis to spot market patterns and forecast how an asset's price will change in the future.
Technical analysis is the study of statistical patterns amassed over time to determine how the supply and demand for a certain asset affect changes in that asset's price in the future. By determining when bullish and negative trends will come to an end, investors can make well-informed decisions based on reading charts of the cryptocurrency market.
Buyers of an asset known as bulls propel an upward price move. A bearish movement is a price decline that the asset's sellers, known as bears, trampled on. To identify trading opportunities, traders might use technical analysis to assess price movements and patterns on charts. The best cryptocurrency charts are useful for tracking market changes, but they have some limitations.
It is crucial to conduct your study on several subjects, including trading indicators and methods, as with many other aspects of the cryptocurrency industry. This article offers some general trading tips about "How to Read Crypto Charts" rather than concrete recommendations. No signal, strategy, or methodology can accurately forecast the market's course. In particular, this is valid for candlestick and cryptocurrency chart patterns.
Chart reading should serve as an introduction to better understanding the crypto market through learning more techniques and crypto market elements since it is a fundamental component of technical analysis. You shouldn't rely solely on reading candlesticks and charts to predict the market.