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The crypto world is not about entering and trading in the domain. It is also not applying trading strategies and predicting price movements. It requires doing more than that. Among them is reading and analyzing crypto charts. Whether you are a trained crypto trader or a new one, understanding what crypto charts convey is a crucial skill everyone should master. If you are intrigued by how to read a cryptocurrency chart, this guide will help you learn it.
In this article, you will learn a step-by-step guide on how to read a cryptocurrency chart. In addition, we will break down the basics of crypto charts. From chart components to crypto chart patterns, you know every bit of it, helping you make informed decisions.
Why Reading Cryptocurrency Charts Is Essential for Traders?
Reading a cryptocurrency chart is essential and comes with its benefits. The primary feature that highlights the importance of reading a crypto chart is that it allows you to gain unlimited profits while crypto trading. Not only this, you constantly engaged with what is happening in the market, and how market trends are going in response to price fluctuations. In the end, reading a chart helps you make informed decisions about when to invest in crypto assets and when not.
Additionally, there is a term known as technical analysis, which is considered as basics to understanding how to read and predict crypto charts. In technical analysis, you use techniques to analyze historical prices and volume data. In the end, it helps you in predicting future price changes.
Point to be Noted: Future prices of crypto assets are not predicted precisely. Even then, technical analysis helps crypto traders study patterns, trends, and entry and exit points in the market.
Types of Cryptocurrency Charts:
Knowing several types of cryptocurrency charts is as imperative as reading them. Lacking knowledge about crypto charts impacts overall trading. Specifically, there are three types of crypto charts.
1. Line Charts
The simplest type of crypto chart, the line chart is a visual representation of cryptocurrencies’ closing price, over a specific time. The primary feature of this chart is that it connects closing prices each time, resulting in creating a continuous line. In the end, it provides an overall market trend.
Advantages
- Useful for identifying long-term market trends and patterns.
- It provides a clear visual representation of the assets’ price movements over time.
Disadvantages
- Line chart lacks information about the highs and lows and open prices.
- Lacking data often limits some traders.
2. Bar Charts
Bar charts use bars to provide information about the price movement. Moreover, you will notice that each bar in the chart represents closing prices, high, and low for a specific period. However, it unfortunately lacks in showing open price.
Advantages
- Bar charts are easier to read because they are less cluttered.
- Crypto bar charts provide a visual representation of trading volumes and price movements.
- These charts are considered useful in identifying trends and patterns in the crypto market.
Disadvantages
- Bar charts are less commonly used compared to candlestick charts.
3. Candlestick Charts
These type of charts represents detailed and in-depth information about trading activity. It displays low, open, and closed prices for a given period. It also represents various patterns through which you keep a close eye on market trends.
Advantages
- Candlestick charts provide information regarding price movements and market trends.
- These charts help identify current market trends.
- Candlestick charts aid in making informed trading decisions.
- Candlestick charts require skill to understand them.
- These charts are more cluttered compared to line and bar charts.
How to Analyze Cryptocurrency Charts?
Cryptocurrency charts are a visual representation of price changes. Analyzing these charts lies in its ability to understand displayed components. Since crypto charts are loaded with indicators, information, and whatnot, you must know what components convey what. For example, if you look at a typical crypto token chart, it includes:
1. X-Axis (Horizontal): Timeframe
Firstly, a crypto chart has a defined horizontal or X-axis. This part displays the time frame on the chart which ranges from minutes to weeks. The timeframe on the horizontal axis depends upon the specific chart settings. But, you have always the option to switch chart timings that suit your needs according to the trading.
For example, a 1-minute chart shows the price action for each minute, while a 1-day chart shows the price action for 24 hours.
2. Y-Axis (Vertical): Price
Another crypto chart component that needs a common understanding is the Y-axis. While everyone knows, it is a vertical side of the chart, it is specifically dedicated as a price scale in the crypto charts. A price scale offers a wide range from $0 to $100 or any other range. The setting of the price ranges on the Y-axis depends on the asset that is being traded, allowing traders to zoom in or out on specific price levels.
- Trading Pair
- Current Price
- 24H Vol
- Trading Volume which includes information about crypto volume charts
The number of components except the x-axis and y-axis depends on the type of chart you are studying.
How to Read a Crypto Candle Chart?
Candlesticks are the ones that make up the crypto charts. It represents individual periods from 1 hour to even 1 day. In a typical crypto candlestick chart, each candlestick has a body and wick. The body represents the assets’ opening the closing prices. On the other hand, the wicks that are extended lines show how high and low a crypto price can go.
Reading a crypto candle chart involves understanding its further components, namely, the body and wick.
Body
The thick part (body) of a candlestick plays a crucial part when reading these charts. As mentioned, the body represents at what price the crypto asset opens and closes in the specified period. The body appears green when the closing price is higher than the opening price.
On the other hand, the thick part appears red when the closing price is lower than the opening price. Additionally, how much length the body attains during price movement matters. The longer the body’s length, the more significant the price movement and vice versa.
Remember, body color changes according to certain situations. The candlestick body will turn green when the closing price is higher compared to the opening price. However, the body changes to red when the reverse happens.
Wicks
Another important part of the candlestick charts is known as wicks. These are the lines that extend from the body and have their significance. Wicks are the portions in the chart that present high and low prices of the cryptocurrency for the period. When glancing at the candlestick chart, you must notice that the upper wick illustrates the assets’ highest price. Whereas, the lower wick indicates the asset has reached its lowest price during the period.
In other words, an upper longer wick explains that traders are gaining profits and selling crypto assets is imminent. Whereas, a downward lengthy wick explains that traders prefer purchasing the crypto asset owing to the price declines shortly.
Chart Patterns
Candlestick charts are the most popular type of crypto charts. It is because they provide you with instant information in a detailed manner. In crypto chart analysis, candlestick charts are more in store for you.
They present various patterns depending on where the wick elongates and how much length the body attains. These patterns allow you to critically spot patterns and trends occurring during price changes. So, let’s get into the insights of these.
Bullish Pattern
As you know, green colored candlestick body indicates an increase in the price of a cryptocurrency at its closing point. It indicates a bullish pattern where there is a potential rise in the price of a cryptocurrency. It represents higher chances of price increases. There are many types of bullish patterns on candlestick charts, you must have a know-how of them.
Hammer
Shooting star Pattern
Inverse Head and Shoulders
Bullish Engulfing
Golden Cross
Piercing Line
Bearish Pattern
On the other hand, the red-colored candlestick body indicates a decrease in the price of a cryptocurrency at its closing point. It indicates a bearish pattern where there is a potential decrease in the cryptocurrency’s price. Overall, it represents higher chances of price decreases. Of course, bearish patterns form different types of candlestick charts, which you must study.
Bearish Head and Shoulders
Bearish Engulfing
Death Cross
Dark Cloud Cover
Wedges
Each crypto chart pattern is different. From bearish pattern to bullish, each pattern has its unique characteristics following the downtrend or upside trend. Another chart pattern includes wedges. These are patterns that are established after confining the cryptocurrency price within two converging trend lines. You must know that these can be rising or falling based on what market trends are.
Rising Wedge: it confirms higher highs and lows in response to the crypto price. The two upward-sloping trend lines indicate the rising wedge pattern. In this pattern, the price breaks down via a lower trend line.
Falling Wedge: it confirms the falling pattern when the price makes lower highs and lows. The two downward-sloping trend lines indicate the falling wedge pattern. In this pattern, the price breaks out via the upper trend line.
How to do Technical Analysis for Crypto?
Analyzing crypto involves using technical indicators. They are the tools that help you read crypto charts, indicatorspatterns, predict future prices, and make investment decisions. Although there are many technical analysis tools, this guide sheds light on the most common ones.
Moving Averages
These are the primary indicators that calculate the average price over a specified period and smooth out price data. There are two types of moving averages, namely Simple Moving Averages and Exponential Moving Average. The goal is to identify trends so that traders can decide when to buy and sell digital assets.
Relative Strength Index
The RSI is a technical analysis oscillator that measures the frequency and speed with which the price changes. While the normal range is between 0 to 100, a reading above 70 explains that crypto assets are in an overbought situation. On the other hand, reading below 30 explains that the asset is oversold. Overall, RSI gives the concept of determining average price gains and losses over a specified time.
Bollinger Bands
Bollinger Bands is a volatility technical analysis indicator that uses a standard deviation and a moving average to generate upper and lower bands. These bands then surround the asset’s price, helping in identifying price breakouts and potential reversals.
How to Read a Crypto Depth Chart? Additional Tips
Following are the tips by which you become a pro in reading and understanding crypto charts. Enjoy profitable trading and do not forget to implement these additional suggestions.
- You must start with a clear understanding of the chart type and components.
- You must not rely on charts only, for they give missing information.
- Identify trends and support or resistance levels cautiously.
- Deeply look for candlestick patterns and chart patterns.
- Use different technical indicators to confirm your analysis.
- Set alerts for key levels or events, and from market volatility.
- Stay updated with the latest chart patterns and indicators.
Conclusion
The cryptocurrency domain is dynamic and attracts everyone to enter and take the world by storm. In this regard, no one remains unwanted and prefers applying techniques and strategies for a profitable trading. However, trading is not without analysis crypto charts and its patterns. In case, you are a beginner and want an initial guide on how to read a cryptocurrency chart, here is your answer. You must remember that every trading is unique and its associated charts and patterns too, so, put efforts into doing thorough research before investing your money.
