The cryptocurrency market is one of the best financial markets today, which can provide you with amazing opportunities to earn a second income. And if you’re ambitious, it won’t take you long to understand all its ins and outs, even if you’ve never traded online financial markets. However, any aspiring crypto trader is easily put off when they hear about technical analysis and reading charts. But we assure you that there is no room for panic. We will explain clearly and easily how to read cryptocurrency charts.
How to read cryptocurrency charts – understand cryptocurrency charts
Every cryptocurrency chart has three main parts: indicators, candlesticks, and order books.
- Indicators
The most important indicators to pay attention to are the RSI Relative Strength Index, Support and Resistance Indicator, Stochastic Oscillator, and volume indicators such as the Accumulation Distribution Line, MACD, or Convergence Indicator. of moving averages. There are others as well, such as market capitalization indicators and trend lines.
When it comes to candlesticks, the most useful are Japanese or Doji candlesticks. They are important in all financial market predictions as they show the following. They mark the high and low points of opening and closing. The most important shapes are the tombstones that indicate a bearish move.
Long legged signals that supply and demand are balanced and that it is time to reverse the trend. The appearance of the Dragonfly Doji candlestick also signals a reversal towards a bearish or bullish trend. Generally, green candlesticks show that the opening price is lower than the closing price on the specific trading day.
The red candle shows that the closing price of the asset is lower than the opening price, as well as the previous closing price. Also, pay attention to long wicks, as they are a safe reversal of the previous trend.
- sort books
Order books determine support and resistance levels in the price of cryptocurrency. These also show at what price certain cryptocurrencies were bought or sold and how much.
How To Read Crypto Charts: Determining The Reversal Point Is Crucial
When can a trend change be confirmed? We come to the big question, for 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 in another way: the difference is made between the lowest point (beginning of the trend) and the highest maximum point. And if 38.2% is subtracted from this figure at the highest peak, the line that the price must maintain globally will be obtained in order to consider that the market continues in an upward trend.
Others will wait for five lower spikes and rely on certain indicators (sometimes they will have built themselves) to read the trend.
There is no magic formula: not everyone can win in the markets. Those who know how to anticipate the changes of direction before the others will be the ones who fill their pockets, and the last ones will surely leave the marbles there.
Each investor or trader will have to build their own strategy to take their profits when appropriate and manage their risk according to the situation they read and understand.
How to read cryptocurrency charts – The Dow Theory
The Dow theory is named for its creator Charles Dow. The name may be familiar to you, as he is one of the creators of the first stock indexes: the Dow Jones Transportation Index. Here are the rules of his theory. Once you master them, you’ll know better how to read cryptographics.
There are three types of market movements: primary, secondary, and tertiary trend. Primary spans several years. The secondary goes from ten days to three months and is also known as the average trend. The tertiary is the shortest and covers the behavior of the assets in a matter of hours.
The market is always a reflection of economic information and news, which highlights the importance of fundamental analysis when making trading decisions.
There are three important phases of the market. The accumulation period: it is the period in which the first knowledgeable investors accumulate promising assets. Then comes the absorption phase, in which the general public enters the game. And the last phase is when the first inventors sell their assets. It is the so-called distribution phase. The Bitcoin market line can be clearly followed.
Moving averages must confirm each other, which means that interdependent markets always go in the same direction.
Trends and price movements on different scales
Prices experience multiple movements constantly because each time frame will be able to show its own trend.
For example, a bullish bounce (in 15 minutes) can be seen within a price correction (downtrend, in daily candles) in the market with a strong bullish trend (weekdays). The strongest move is always the one on the higher time frames.
Generally, there is talk of a trend for the higher terms (months, weeks), while in the lower ones there is talk of movement. Therefore, it is not aberrational to hear of, for example, a bullish bounce on the bearish movement of an uptrend.
When analyzing the price movement of a cryptocurrency, you always have to start by looking at the prices in high time frames (Monthly, Weekly).
The same goes for indicators: these time frames will show you long-term trends, and you’ll want to follow them. Unless you are professionally executing proven strategies, you don’t want to sell/short a bullish market or buy a bearish market. Most of your trades/investments could end up losing quickly.
Price is a tug of war between buyers and sellers. It’s usually healthier to bet on the ones with the momentum.
In summary: it is a bad idea to sell your cryptocurrencies that have been going up for weeks because you see the price go down in 1 hour, or, conversely, buy a bear market because you see the price recover in 30 minutes.
Within a given scale, there are different methods to try to identify trends. None will be perfect. That being said, you have to pick one. Here is an example based on the evolution of the maximums (local maximums) and minimums (local minimums) of the market:
If the highs and lows are ascending, the trend is up.
If the highs and lows are descending, the trend is down. This method generally consists of looking at at-least three troughs/peaks before inferring a trend. Some prescribe 4 or 5 spikes.
How to read cryptocurrency charts – Determine the current price of cryptocurrency.
You will find the current price on the last candle on the chart, the one that moves every second: it is the closing price of this candle.
And here is, frankly, a little trap, and you fall into it right away!
This is not the current price you just read, but the last price it traded at! The current price at which you can immediately buy or sell 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 won’t fall far from the tree. But if you buy large amounts of cryptocurrencies for which liquidity is low, you may be in for unpleasant surprises.
How to read trading volumes on a bitcoin chart
What is trading volume? Shows the number of currencies traded in a given 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 bull market, or a bear market, is correlated with high volumes and vice versa. If the price increases but the trading volume decreases, it shows low interest in the asset. It could indicate a possible setback.
How to read cryptocurrency charts: the importance of tech analysis
Technical analysis of market behavior is a basic element for crypto investing and trading successfully and profitably. Even if you can resort to auto trading mode at any time these days, knowing the principles of technical analysis is necessary to call yourself a knowledgeable trader.
Predicting bullish and bearish periods and the moving prices of an asset in the markets is impossible without knowing how to read cryptocurrency charts, data points, bar charts, patterns and indicators.
In cryptocurrency trading it is ultimately necessary to understand the cryptocurrency chart. Without that skill, you are blindly investing in an asset you don’t fully understand.
Don’t leave anything to chance. Because only with a meticulous and studious approach can you develop complete and effective trading strategies. And consequently, you will be in a position to make constant profits.
We hope this article has helped you understand how to read cryptocurrency charts. However, we have covered only the most important and most necessary indicators to follow in any trade. To master the analysis of the technology, you will need to put in extra efforts, find some free online training or tutorial, and practice on a trading account while starting with a demo.
