If you want to be a successful cryptocurrency trader or someone who wants to make the occasional move when the timing seems right, you’ll need to know how to read crypto charts. Many people choose to listen to their gut when determining whether to buy or sell crypto. Often, they end up getting the timing of the transaction wrong.
Reading crypto charts can be tricky because they look slightly different from traditional forex and stock charts. Crypto charts emphasize market depth and volume to help you understand how the price is moving. It offers a data-driven outlook of the crypto market that enables investors to make informed trading decisions.
In this article, we discuss the basics of trading charts. To fully understand how to trade crypto successfully via charts, you need to consistently apply the information in this article. You also need to research your digital asset of choice to determine whether a time is right to buy the dip or cash out while you still can.
The chart below shows the price fluctuation of Bitcoin (BTC) for most of 2021 via coingecko
What are crypto charts?
Crypto Charts are a type of chart that displays the price movements over time. They include what is known as candlestick charts, bar charts, histograms, and more. Each chart type provides a different market view, revealing different information and trends.
Advantages of crypto charts
Crypto Charts can be used by traders to make decisions regarding their investments and track how prices change for cryptocurrencies over time. They can be used during long periods or for short-term changes. By looking at the charts, traders and investors can see patterns in which they can trade or invest based on those patterns.
Crypto-Charts provide an invaluable tool for those who trade cryptocurrencies or want to learn about them. They provide data on each cryptocurrency’s price movements, volume fluctuations, and market capitalization over a period of time. All this data helps users determine the best course of action when it comes to trading and investing as well as other things such as research.
Crypto Charts brings together the current state of all cryptocurrencies in one place, allowing people to see how they are performing relative to each other. For example, users can see how certain currencies are valued compared to others, view the current market capitalization of specific coins, and even compare them in terms of portability, transaction fees, and confirmation times.
Types of Crypto Charts
The following are the most common type of crypto charts
Candlestick charts
Candlestick charts are among the most popular chart types used by day traders and investors. Candlesticks have been around for centuries, but they gained popularity among stock market traders only recently.
Candlesticks are most popular with technical analysts because they provide a visual representation of how a security’s price closed during a specific time period. This can be very helpful in determining the direction a stock might take next.
Candles represent the opening and closing prices of a security for a specified time period, usually one day. The candle’s body represents the range between the opening and closing prices. It is typically green (bullish), red (bearish), or neutral if prices close in between. The wicks, or shadows as they’re also called, represent the high and low prices on either end of the candle.
Line charts
Line charts are very popular and for good reasons. They’re easy to understand and read, don’t take up a lot of space, and are great for comparing data over time.
It has two axes, X and Y. The X-axis shows dates, and the Y-axis shows prices. The lines connecting the dots are used to visually portray the information on the axis. Line charts are a lot like a temperature graph: they’re used to show change over time.
When choosing which coin to invest in, it’s important that you learn how to read charts and make proper decisions based on your research.
Line charts can be applied with any currency or asset that has a market cap and price history. Line charts are superb for visualizing trends in stock prices, commodity prices, bond yields, and foreign exchange rates. A line chart can also be used when comparing multiple assets against each other (such as cryptocurrencies).
Support and Resistance Levels
Another important aspect of technical analysis is Support and Resistance Levels. This process needs plenty of practice to master. However, a good understanding of this technique will make your trading easier.
Support and resistance levels are trading price areas determined by the number of previous transactions at a given price. Due to the law of supply and demand, prices will tend to find support at certain price levels and resistance at certain other price levels because of the amount of previous transactions. The support or resistance level is identified by two parallel lines drawn on a chart (hence the name “support” and “resistance”).
The support line is created by identifying a level where the price has previously reversed before continuing in its prevailing direction. The resistance line is created similarly but with the trend going in the opposite direction. Support and resistance levels are crucial because they help traders determine when to enter into or exit out of a trade. The break of these levels signals a change in momentum and often leads to reversals in price trends.
Trading volumes
Trading volumes are one of the most important factors in the trading decision-making process. All exchanges have their own volume, and they all differ in how they display it. There are basically two types of trading volumes:
Market volume is the total amount of money exchanged in currency pairs on a specific day. For example, if you’re looking at BTC / USD on Bitfinex, this would be the total amount BTC sold and bought on that day
Traded volume is a bit different. It shows how much was traded in relation to market volume.
So why do you need to know about trading volumes? Simple:
Trading volume is essential for making a sound trading decision. It gives you an idea of how much money is actually being exchanged in a specific currency pair or market. The higher the volume is, the more liquid the market is, and thus it’s easier to enter and exit positions with small spreads and low slippage. It also gives you more information about price movements; since large orders can influence prices more easily.
Bulls and Bears
Cryptocurrency prices can go up and down like any other commodity. As the price of a cryptocurrency fluctuates, so does the demand for its use. These upward and downward phases are known as bull and bear trends.
Prices are affected by various factors, including changes in volume, media exposure, market sentiment, and regulatory changes. They can also be affected by fundamental factors, such as an increase in supply or a decrease in demand.
Bull and Bear represent different market trends – an upward market trend is known as a bull market. In contrast, a downward trend is a bear market (Bullish candles are green, while Bearish candles are red). Cryptocurrency markets have seen both during their short existence, with Bitcoin dominating most headlines.
Timeframes for Crypto Charts
There are many different timeframes for crypto charts, and each one offers different information about the market. However, as a general rule, the shorter the time period, the more frequent and intense the price fluctuations. So if you’re looking to minimize risk, you’ll want to look at a chart that spans a longer period of time.
Day trading
This involves buying and selling cryptocurrencies within a short period of time (usually within 24 hours). Day traders aim to profit from small price movements across exchanges.
Day traders use technical analysis to take advantage of short-term price movements in the market. The idea is simple: buy low and sell high over several days. Timing is the real key to success with this strategy.
Swing trading
Swing trading means holding your investment for longer than a day but less than two weeks. Swing traders are not interested in the long-term, only the short-term. Unlike day traders, swing traders hold positions overnight and into the next day. Their goal is to make money from intraday moves, not from fluctuations that take place over weeks or months.
Position trading
A position trader is a trader who enters the market with a view of holding an investment for an extended period of time (weekly or monthly).
You may have heard the phrase “buy low, sell high,” which is exactly what a position trader does. Position traders tend to follow a strict trading plan designed to take advantage of expected price movements within the asset’s price range.
Top Crypto Analysis Tools
The popularity of digital coins, like Ethereum (ETH), Tether (USDT), and Bitcoin (BTC), has given rise to many technical analysis tools for cryptocurrency. The following are some of the top crypto analysis platforms today:
Coinigy
Coinigy is a professional trading tools platform that supports more than 300 assets and provides real-time data feeds. It offers charting, technical indicators, and a variety of other advanced tools. Coinigy provides a comprehensive set of tools for traders with access to real-time and historical data on over 6,000 different cryptocurrencies and exchanges.
CoinCap
CoinCap allows users to easily track live data on multiple digital currencies at once. The website features more than 120 different cryptocurrencies along with historic price data. It allows users to create custom price alerts for each coin.
CoinGecko
CoinGecko is a cryptocurrency ranking charting website that provides detailed information on various digital currencies such as Bitcoin, Ethereum, Monero, Litecoin, and many more. The site uses graphs and charts to create visual representations of data so that people can quickly analyze their favorite cryptocurrency investments.
BitMEX
A great option for advanced traders, BitMEX is a peer-to-peer trading platform where you can trade on leverage or simply use it as a cryptocurrency exchange. It also offers a mobile and web app with powerful tools for analyzing market activity.
Conclusion
To sum it up, you need to distinguish the trends from the noise. And that starts with learning how to read crypto charts well. Many factors can affect the price of a cryptocurrency, including supply, demand, and other market factors.
Understanding how to read crypto charts will allow you to identify which trends will become important and which ones will not. And by understanding these trends, you can make better decisions about when to buy, sell or hold your trading position.