Understanding the trends and patterns of cryptocurrency can be confusing when you’re researching coins. Thus, learning how to read crypto charts is a vital step you need to take to make good and profitable trades.
If you’re want to become an expert crypto trader, the charts can be an extremely powerful tool. Mastery is leverage for many traders as Crypto charts are crucial to their decision-making process.
This read will help you learn what a crypto chart is, the technicalities, and its tenets. You will also learn how to read crypto charts and discover some crypto charting software.
What Is A Crypto Chart?
A crypto chart is a graphic tool that shows relevant data in such a way as to enable you to understand cryptocurrency price movements.
The data is plotted such that you can see patterns in market price movements. They also assist in recognizing trends as they form and creating a picture of the overall direction of the market. The market may be bullish (the price is going up as people are buying) or bearish (the price is going down as people are selling).
The idea is that it can be used to predict the market direction and the potential market value. This is to determine when to buy, sell, and HODL.
Why Read Crypto Charts?
Time is very significant in the cryptocurrency market. To have precise entry and exit points, you need to learn how to read crypto charts. You can develop incredible trading ideas and assume that a certain coin is about to pump. However, if you choose the wrong entry point, you might be losing a fortune.
Also, If you leave a trade too early or too late, you can lose money on the table. Using crypto charts with technical analysis can compensate for that.
However, to make satisfactory crypto trades, you must be able to perform a sound technical analysis aided by the Dow Theory.
What Is The Dow Theory?
Dow Theory interprets market trends and how they generally behave. It gives signals that can be used to recognize the primary market trend. The primary market movement is then used in making decisions.
Crypto markets rise and fall in unusual patterns. Being able to recognize and read crypto chart patterns makes it possible to foretell market behavior.
Tenets Of Dow Theory
The Dow Theory rests on six fundamental principles
1. There are three market movements
2. The main market movements are comprised of three phases.
3. The market integrates new information immediately it becomes available
4. Stock market averages must substantiate each other
5. Trends get verified by volume
6. Trends exist until it is proved that they have stopped.
What Is Technical Analysis?
Technical analysis is a method or strategy used to predict a cryptocurrency pair’s potential future price movement. The better the technical analysis, the better the discerning of the market. To perform technical analysis, you need to read crypto charts.
How To Read Crypto Charts
Considering the possibility that you are into trading cryptocurrencies. it is important to understand how to read crypto charts. When dealing with the securities exchange, you need to possess the basic ability to understand charts.
Crypto charts primarily reveal two attributes which are cost and volume. Cost exhibits changes in the expense of the digital currency over the long pull. The volume indicates the number of units of digital currency that have been traded.
Primary Ways To Read Crypto Charts
There are two primary ways to read crypto charts which are used to study and exchange cryptocurrencies forms of money.
#1.The candlestick chart
#2. The line chart.
#1. Candle-Stick Chart
This is the most loved chart used by proficient brokers to help them understand business sector drifts. It also helps to predict what direction the market will move. This chart utilizes an image known as candle-sticks. The image indicates the opening, shutting, high, and low costs.
A candle-stick expresses a time frame. Such time frame could be a moment, an hour, a day, or a month – depending on the chart used.
When you’re studying crypto assets, you may encounter candlestick charts. Therefore, it is reasonable to take time to learn how candlestick charts work. Key Element Of The Candlestick Chart
The key elements of the crypto candlestick charts are:
#1. Time selection
#3. Bearish and Bullish Candlesticks
#1. Time Selection
You may choose a time framework to show on the crypto-candlestick charts. Also, you select from minutes to hours, days, weeks, or even months from the default time frame. You can also alter the period to suit your needs.
The time that a trader selects is dependent on their unique trading style. Traders extensively fall into two groups:
- Intra-day Traders: These are traders who open and close their position within a day. More reason why they prefer short timeframes like minutes and hours
- Long-term Holders: Long-term holders may hold positions for weeks to months and even years. These holders use hourly, daily, or even weekly charts
Another thing a standard cryptocurrency chart will show is the volume. The volume will reveal how much trading activity transpired during the selected time frame.
#3. Bearish And Bullish Candlesticks
Lastly, a cryptocurrency chart will show two types of candlestick charts:
- Bearish candlesticks
- Bullish candlesticks
What Does The Candlestick Represent?
Each attribute of the candlestick charts stands for one thing or the other. Such attributes include color, body, and the wick.
Green candles indicate prices going up. Thus, the opening is at the bottom of the body and the closing is at the top. Red candles demonstrate prices falling, so the opening is at the top of the body and the closing is at the bottom.
Each candle comprises the body and the wicks. The body of the candle says what the open and close prices were during the candle’s time frame.
The lines extending from the top and bottom of the body are the wicks. They indicate the highest and lowest prices the asset hit during the trading frame.
What Do Candlesticks Tell Us?
Candlesticks charts can disclose more than just price movement with time. When you’re seeking patterns to assess market emotion and to make projections about the market’s direction.
Here are some things to watch out for:
- A long wick on the bottom of a candle. This might mean that traders are acquiring an asset as prices fall. This may be a good sign that the asset is on the rise.
- A long wick at the top of a candle, however, could indicate that traders are seeking to take profits. It signifies a huge potential sell-off in the near future.
- If the body acquires almost all of the candle, with very short wicks (or no visible wicks) on either side. this might suggest a strong bullish sentiment (on a green candle) or a strong bearish sentiment (on a red candle).
Knowing what candlestick charts might imply in the context of a particular asset is an element of a trading strategy called technical analysis.
How To Read “One-Candle Signals”
Traders operating in short periods often focus on just one candle. Acquainting yourself with these “one-candle signals” can be useful.
The One-Candle Signal Types
There are four common one-candle signals:
- A long upper shadow could be a sign of a bearish movement. This means that investors are seeking to sell and take profit. The length of the upper shadow is directly proportional to the strength of the indicator.
- A long lower shadow could be a bullish sign. This might signify that investors are seeking to buy, thus pushing prices up. However, the longer the lower shadow, the more credible the signal.
- A Doji candle has no body as the open and close prices are equal. These can be interpreted to imply there is indecision in the market. It is also a logical indicator for an impending price reversal.
- Umbrellas have a uniquely long bottom wick. A red umbrella is otherwise known as a hammer. When you see a hammer it often means that some serious buy action is ongoing. Thus, the price might rise. Green umbrellas, also referred to as hanging men. They often signal that sellers are prepared to cash out.
Candlestick Charts Indicators
The candlestick indicators are of two types
#1. Bullish Indicator
#2. Bearish Indicator
#1. Bullish Candlestick Indicator
Green candles represent bullish candlesticks showing a price increase in the time frame chosen. The top of the candle closes the price and the bottom part opens it.
#2. Bearish Candlestick Indicator
The bearish bowls indicate a decline in the price of red candlesticks. The top part is the opening and the bottom part is the closing.
The beauty of these candlesticks is that it definitely reveal exactly where the market is moving towards. It also helps to recognize different patterns which may enable you to foresee how the market will behave.
The candlesticks of Bearish and Bullish reversal patterns are both three on the candlestick chart.
- Bullish Reversal Patterns
The hammer is a single pattern with the following feature:
- Little or no upper shadow
- Price closing at the top section of the range
- The lower shadow is twice or thrice the length of the body
A hammer is a bullish reversal pattern that originates after a deterioration in price. They normally form after a price drop.
The hammer indicates:
- The sellers have dominated and the price has dropped.
- Though, at the climax of the selling period, buying tempo pushes the price higher.
- This movement was so strong that the closing price ended above the opening price.
Bullish Engulfing Pattern
The Bullish Engulfing is a 2-candle pattern.
- The first candle is bearish while the second candle is bullish.
- The body of the second candle fully overwhelms and covers the first candle
This indicates that:
- On the bearish candle, the sellers are in control.
- On the second candle, the bulls hit back with a powerful comeback and entirely overwhelmed the bears.
A morning star is a 3-candle bullish reversal pattern that takes shape after a decline in the price.
- The first candle is bearish.
- The second candle has an incredibly small range.
- The third candle demonstrates a fierce upwards momentum.
- The sellers are in control as the price nears lower in the first candle.
- The second candle is an interesting one as the buyers and sellers cancel out.
- In the third candle, the buyers completely dominate and close the price higher.
The morning star pattern notifies you that the sellers have been consumed after struggling with the buyers and the market is now bullish.
Bearish Reversal Patterns
The shooting star is a 1-candle bearish reversal pattern. This is how you perceive it:
- Little or no lower shadow.
- Price closes at the bottom one-quarter of the range.
- Upper shadow is about twice or thrice the length of the body.
- The buyers took control as the market opened and raised the price high.
- At the close, there was massive selling tension from the bears.
- The selling momentum was so strong that it dominated the bulls.
In short, a Shooting Star indicates a bearish reversal and shows that the sellers are moving in strong into the market.
Bearish Engulfing Pattern
A Bearish Engulfing Pattern is a 2-candle bearish reversal candlestick pattern. So, how do you discern this pattern?
- The first candle is bullish.
- The second candle is bearish and huge enough to overpower the first candle.
The Bearish Engulfing Pattern implies:
- The buyers are dominating in the first candle.
- However, the sellers dominate and the selling momentum is so powerful that the market closes lower than the previous candle’s low.
The Bearish Engulfing Pattern informs you that the sellers have overpowered the buyers and are now in control.
An Evening Star is a 3-candle bearish reversal candlestick pattern. This is how you identify the pattern:
- The first candle has a bullish ending.
- The second candle possesses a small range.
- The third candle has a fierce bearish close.
What does this pattern mean?
- The first candle indicates that the buyers have taken charge and closed the price higher.
- The second candle is a deadlock between the bulls and bears.
- The third candle shows that bullish momentum has been drained and the sellers are in control.
The Evening Star explains that the buyers are weary and the sellers are presently in control.
#2. Line Chart
A line chart is the most basic diagram that you will encounter. They function by indicating the explicit movement of something over a period. They are expressed by a line.
With respect to cryptocurrencies, the line deals with the demonstration of the coin throughout a period of time.
These are straightforward diagrams, and they give an adequate thought of how the coin has performed as far as execution. This makes it precise and simple for you to determine whether it is a coin you would contemplate putting resources into.
You need to get a good sign of whether it is ascending or descending. And it should be regardless of whether it is stable or unstable, and how it is behaving temporarily.
Market Depth chart
The market depth chart provides you with an idea about Supply and Demand in the crypto market. You can decide to sell (red) and buy (green) orders without any problem. The green side reveals the total number of coins having buy orders at the current price. Also, the red side reflects the quantity of cryptocurrency with sell orders at the current price.
The center, where two lines meet, depicts the current market price. If you position the cursor on any point on the green or red line, you will discover how much you could buy or sell (vertical axis) at some certain price (horizontal axis).
Furthermore, the Market Depth chart indicates whether the price of crypto will increase or decrease. If buy orders surpass sell orders then the price rise.
Support And Resistance Levels
It is important to read Cryptocurrency charts at support and resistance levels. There are some levels which signify the change in trends. Traders usually acquire and trade at the support stage.
When the crypto-asset price stops to fall at a limit, then the support level is established. However, if the sellers are more vigorous, a new level can be established because the price oversteps the previous level of support.
The level of resistance is determined at the period when the crypto-asset price stops rising. The resistance level can be exceeded if buyers possess enough momentum.
Participants In The Market
The support and resistance levels are defined by the participants in the market. There are generally three types of participants:
- Long term Traders who are waiting for the price to rise.
- Short term Traders who are waiting for the price to fall.
- Traders who don’t know which way to go.
When the price of the market enters the support level, all participants buy-in. The long traders are happy with the market trend and may try to add to their position. The short traders acquire more to breakeven, while the doubtful traders’ buy-in at the support level.
The price chart is a graphical indication of the market emotions. When the price falls to the support level, emotions like greed kicks in for the long traders. whereas when the price goes up, panic kicks in.
Market emotions are indicated in support and resistance levels. It is vital to be able to read these levels from a crypto chart because they attract lots of awareness and create tension. This attention attracts a large number of volume and traders.
Crypto Chart Analysis Software
Charting tools can greatly help when cultivating your technical trading abilities. There are many charting tools on the market. Below is a list of some of them.
Knowing how to read crypto charts is an important skill if you want to trade in cryptocurrencies.
To make good crypto trades, you need to be able to do a sound technical analysis supported by the Dow Theory. The first step of sound technical analysis is knowing how to read crypto charts.
You need to be able to read the candlestick charts to determine the support and resistance levels. Being able to read the market emotions will also give you the best chance of predicting the market trends.
Read also 24 Best Sites like Coinbase.
FAQs On How To Read Crypto Charts
What time frame is best for crypto trading?
As a general rule, traders should employ a ratio of 1:4 or 1:6, such as a 1-hour chart for entries and a 4-hour chart for spotting the trend.
What charts do crypto traders use?
TradingView is the most popular charting and technical analysis tool for traders of all markets.
What does a bullish crypto chart look like?
The bullish candlestick will be shown in green.
How do you technically analyze Crypto?
Cryptocurrency technical analysis usually depends on charting patterns, statistical indicators, or both
- tradesanta.com – how to read charts when trading crypto
- blockgeeks.com – learn how to read crypto charts
- www.luno.com – beginners guide to cryptocurrency charts
- www.stilt.com – how to read crypto charts
- www.coinbase.com – how to read candlestick charts
- cryptotrader.tax – the best charting tools for crypto traders
- www.hedgewithcrypto.com – crypto charting sites