If you want to trade in cryptocurrencies, you’ll need to understand how to read crypto charts. You must conduct a competent technical analysis based on the Dow Theory to execute good bitcoin trades. You must be able to read candlestick charts and identify levels of resistance and support.
Let’s have a look at all the terminology used above to understand how to read crypto charts in different ways.
Crypto Candlestick Chart
Candlestick charts depict the highest, lowest, opening, and closing prices of cryptocurrencies over a given period. When you create a candlestick chart, you’ll select the period it should span.
The following are the key features that will help you read crypto charts:
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Step 1- Select the Time
You may specify the period the candlesticks should represent on the crypto charts. You may determine the period the candlesticks should cover on the crypto charts.
Step 2- Look at the Volume
The time frame may be altered to make it even more flexible. The longer the volume bar, the stronger the purchasing or selling pressure. A green volume bar indicates growing interest and buyer demand for the coin, and a red volume bar suggests a drop in interest in the coin and selling pressure.
Step 3- Distinguish the Type
There are two types of candlesticks that you would see on display.
- Bearish candlesticks
- Bullish candlesticks
Green candles signify bullish candlesticks by default, indicating that the price has increased over the given time frame. A bullish candlestick is when the ending price of a 5-minute candle is higher than the opening price.
In bullish candlesticks, the bottom of the thick section represents the beginning price. The wicks of the candlesticks show the highest and lowest prices for the period chosen and vice versa for the bearish candlesticks.
Time is measured on the horizontal (X) axis in the line chart, while the price is calculated on the vertical (Y) axis. Check the price of an item at a specific time; seek the desired time on the X-axis to view the asset’s price.
You can further explore by comparing the slopes of two sets of price points during the same period. The steeper the line’s angle, the faster the price moved up or down, possibly indicating the strength of the price action.
The Dow Theory
Charles Dow introduced the Dow Theory. In his view, the present asset valuation reflects all historical and current factors. In the context of crypto, all past, present, and future needs and any restrictions that may affect crypto pricing are considered.
Furthermore, market analysts tend to focus on the price of a single coin rather than single variables. Secondly, the price changes aren’t random. Whether the market is long-term or short-term, a specific trend is followed.
Technical Analysis Tools
Technical analysis is a tool for predicting a cryptocurrency’s likely price moves in the future. Its trading uses charts and other indications to forecast the market. It may be a pleasant and exciting process that helps you read crypto charts and everything else there is to know about the market.
The RSI Indicator
To detect overbought and oversold positions, a relative strength indicator is used. The more the price changes over time, the price changes over time, the more the line graph moves up or down. The Value ranges from 0 to 100. Overbought and oversold lines are drawn on top of the chart, with preset values of 70 (overbought) and 30 (oversold) (oversold). The price will likely fall when the bar passes the upper, overbought line. The converse is true when it crosses the lower (oversold) line: the cost may be due for a rebound.
Moving average convergence-divergence is a more advanced version. Two lines can be seen on the MACD chart. The first line shows the results of subtracting the asset’s 26-period EMA from its 12-period EMA to get a set of values. The central MACD line can be seen.
The MACD values for the 9-period are shown on the second line called the signal line.
When the MACD line passes the signal line, it signals the possibility of a trend emergence or break.
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A moving average smooths out price action’s rapid ups and downs, revealing a more apparent general trend. Regardless of the moving average, it averages a predetermined number of data points. On the graph, the resulting value is plotted.
Simple Moving Average
The SMA is added to the price chart and is computed as the average of prices over several measurement intervals, usually days. The SMA allows you to see the broad trend in the price chart without being distracted by smaller events inside but does not break the trend.
Exponential Moving Average
The exponential moving average (EMA) version of the SMA adds more weight to the later data points used in the average calculation.
Because of this weighting shift, the EMA is thought to be more sensitive to future changes in the price chart. The analyst determines the actual weighting technique based on the goals of the analysis.
Support and Resistance
Whenever the price of any crypto asset stops decreasing after hitting a specific point, it creates a support level. If the sellers keep up their momentum, the price will break through the prior support level and build a new.
A resistance level gets there when the price of a crypto asset stops growing. If buyers gain enough momentum, the resistance level can be broken. A group of resistance will develop. If buyers gain enough speed, the resistance level can be broken.
The price rises when the price bounces off of a support level, as shown in crypto market charts, and when long traders add more money to the market to improve their position. Short traders will also try to buy-in. Those new to the market may want to wait for a breakthrough in the support level.
Traders frequently buy at support and sell at resistance levels.
As a newbie, you must understand the fundamentals of reading candlestick cryptocurrency charts in order to engage in cryptocurrency trading. Depending on your preferences and trading strategy, you may select charts that cap information over different time periods and try to read crypto charts. Being able to interpret market emotions in this manner will offer you the best chance of correctly forecasting market developments.