How To Read a Crypto Charts – The Simple Way
The Crypto market is one of the best financial markets today, which can bring you amazing opportunities to make a second income. And if you are ambitious, it won’t take much time to grasp all its ins and outs, even if you have never traded on the online financial markets. However, any wannabe trader becomes easily discouraged when they hear about technical analysis and chart reading. But we assure you there is no room for panic. We will explain to you plainly and simply how to read crypto charts.
How to read crypto charts – understanding cryptocurrency charts
Every crypto chart has three main parts: indicators, candlesticks, and order books.
The most important indicators to watch out for are the Relative Strength Index RSI, support and resistance indicator, stochastic oscillator, and volume indicators such as accumulation distribution line, MACD, or Moving Average Convergence Divergence Indicator. There are also others, such as market cap indicators and trend lines.
When it comes to candles, the most useful ones are Japanese or Doji candles. They are important in all financial market predictions since they show the following. They mark the high and low opening and closing points. The most important forms are gravestone which indicates bearish movement.
Long legged points out that the demand and supply are balanced and that it’s time for the reversal trend. The occurrence of the dragonfly Doji candlestick also points out the reversal towards a bearish or bullish trend. Generally, the green candles show that the opening price is lower than the closing price on the specific trading day.
The red candle shows that the price of the asset at the closing is lower than the opening price as well as the previously closed price. Also, pay attention to long wicks since they represent a sure reversal of the previous trend.
- Order books
Order books determine support and resistance levels in the price of the crypto. These also show at which price certain cryptocurrencies have been bought or sold and how much of it.
How to read crypto charts – Determining the point of reversal is crucial
When can a trend reversal be confirmed? We come to the big question, to which there is no real (scientific) answer.
Many traders will tell you that the 0.382 Fibonacci retracement line will mark the end of the trend. Explained differently: you make the difference between the lowest point (beginning of the trend) and the highest peak point. And if you subtract 38.2% of this figure at the highest peak, you will obtain the line that the price must globally hold to be able to consider that the market is still in an upward trend.
Others will wait to see five descending peaks and trust certain indicators (which they will sometimes have built themselves) to read the trend.
There is no magic formula: not everyone can win in the markets. Those who can anticipate the changes of direction before the others will be the ones who fill their pockets, and the last ones will certainly leave marbles there.
Each investor or trader will have to build his own strategy to take his profits when it is relevant and manage his risk according to the situation he reads and understands.
How to read crypto charts – The Dow Theory
The Dow theory is called upon by its creator Charles Dow. The name might be familiar to you since it’s one of the creators of the first stock indices – the Dow Jones Transportation Index. Here are the rules from his theory. Once you master them, you will better know how to read crypto charts.
There are three types of market movements: primary, secondary, and tertiary trend. The primary encompasses several years. Secondary goes from ten days to three months and is also known as a medium trend. The tertiary is the shortest one and encompasses asset behavior in a matter of hours.
The market is always the reflection of economic information and news, which outline the importance of fundamental analysis when making trading decisions.
There are three important market phases. The accumulation – the period where the first investors in the know accumulate promising assets. Then comes the absorption phase, with the larger public getting into the game. And the last phase is when the early inventors sell out their assets. It’s called the distribution phase. You can quite clearly follow the line regarding the Bitcoin market.
Moving averages must confirm each other, which means that inter dependable markets always go in the same direction.
Price trends and movements on different scales
Prices undergo multiple movements constantly because each time frame will be able to display its own trend.
For example, you can observe a bullish rebound (in 15 minutes) within a price correction (downtrend, in daily candles) on the market with a strong uptrend (weekdays). The strongest movement is always that of the upper time periods.
Generally, we speak of a trend for the higher time frames (months, weeks), while in the lower ones, we speak of movement. It is, therefore, not aberrant to hear, for example, of a bullish rebound in the downward movement of an upward trend.
When analyzing the price movement of a cryptocurrency, always start by looking at prices in high time frames (Monthly, Weekly).
The same goes for indicators: these time frames will show you long-term trends, and you want to play along with them. Unless you are professionally executing proven strategies, you don’t want to sell/short an uptrend market or buy a downtrend market. The majority of your trades/investments could quickly end up losing.
The price is a tug-of-war between buyers and sellers. It is generally healthier to bet on those who have the momentum..
In short: it is a bad idea to sell your cryptocurrencies which have been rising for weeks because you see the price go down in 1 hour, or on the contrary, to buy a bear market because you see the price recover in 30 minutes.
Within a given scale, different methods exist to try to identify trends. None will be perfect. That being said, you have to choose one. Here is an example based on the evolution of the highs (local highs) and lows (local lows) of the market:
If the highs and lows are ascending, the trend is bullish.
If the peaks and troughs are descending, the trend is bearish. This method generally consists of observing at least three troughs/peaks before deducing a trend. Some will prescribe 4 or 5 peaks.
How to read crypto charts – Determining the current price of the crypto.
You will find the current price on the last candle on the chart, the one that moves every second: this is the closing price of this candle.
And here is, frankly, a very small trap, and you fall into it right away!
This is not the current price you just read, but the last price it was traded at! The current price at which you will be able to buy or sell immediately cannot be read on the chart. It is deducted from the order book! But rest assured, if you want to buy some altcoins, the apple is not really likely to fall far from the tree. But if you buy large quantities of cryptocurrencies for which liquidity is low, you may have unpleasant surprises.
How to read trading volumes on a bitcoin chart
What is trading volume? It shows you the number of coins exchanged in a certain period. Most commonly, traders look for 24-hour trading volumes. It also shows the weakness or strength of a trend. How to read bitcoin trading volume charts?
In general, a rising market, or a bearish market, is correlated with high volumes and vice versa. If the price increases but the trading volume decreases, it shows a low interest for the asset. It could indicate a potential reversal.
How to read crypto charts – the importance of tech analysis
Technical analysis of the market’s behavior is a staple of successful and profitable investing and trading. Even if you can recourse to auto trading mode any time these days, knowing the principles of technical analysis is necessary to call yourself a knowledgeable trader.
Predicting bearish and bullish periods and moving prices of an asset on markets is undoable without knowing how to read crypto charts, data points, bar graphs, patterns, and indicators.
In crypto trading it is ultimately necessary to understand the cryptocurrency chart. Without that skill, you are investing blindly in an asset you don’t completely understand.
Don’t leave anything to chance. Because only with a meticulous and studious approach will you be able to develop comprehensive and effective trading strategies. And consequently, you will be in a position to make steady profits.
We hope this article helped you understand how to read crypto charts. However, we have covered only the most important and the most necessary indicators to follow in any trades.To master tech analysis, you will need to make additional efforts, find some free online training or tutorial, and practice on a demo trading account.