How to Read Crypto Trading Charts Like a Pro
If you're like most people, you probably think of cryptocurrency trading as being a bit mysterious. After all, it's not like stocks or Forex, where there are clear indicators of when to buy and sell. In order to make money in crypto trading, you need to be able to read charts like a pro. Fortunately, this isn't as difficult as it sounds! By learning a few key concepts, you can start making informed decisions about your trades and hopefully start seeing some profits. So what are you waiting for? Read on for tips on how to read cryptocurrency trading charts!
What Are Crypto Charts?
Cryptocurrency charts are used by traders to track the performance of various digital currencies over time. These charts provide valuable information that can be used to make informed investment decisions.
There are a variety of different types of charts that can be used to track cryptocurrency prices, including line charts, candlestick charts, and bar charts. Each type of chart provides a different level of detail, so it is important to choose the one that best suits your needs. Line charts are the simplest type of chart and track the price of a cryptocurrency over time by drawing a line between two points.
Candlestick charts are more complex, but provide a greater level of detail. They show the opening and closing prices of a digital currency as well as the high and low prices. Bar charts are similar to candlestick charts, but they track the price of a cryptocurrency over time using bars instead of candles.
Cryptocurrency trading charts can be used to make informed investment decisions, but it is important to remember that they should not be used as the sole source of information. In addition to charts, traders should also consider other factors such as news events and technical analysis before making any investment decisions.
What is Dow Theory?
Dow Theory is a technical analysis approach to investing that was developed in the early 1900s by Charles Dow and William Hamilton. The theory is based on the premise that market movements are not random, but rather follow identifiable patterns.
The most basic application of Dow Theory is to look for price confirmation of trend reversals. For example, if you are bullish on a stock, you want to see it make a higher high and a higher low. Conversely, if you are bearish on a stock, you want to see it make a lower high and lower low.
The Dow Theory is a market analysis technique that is based on six key concepts. These concepts are:
The market has three movements
First, the primary trend is the long-term movement of the market, which can last for years. Secondly, the secondary trend is a shorter-term movement that corrects or interrupts the primary trend. In the last, the tertiary trend is a very short-term movement that occurs within the secondary trend.
The major market trends have three phases
The accumulation phase is when smart money (i.e. institutional investors) starts to buy stock in anticipation of a price increase. Over this, the mark-up phase is when prices start to rise as more and more investors jump on the bandwagon. Finally, the distribution phase is when the smart money starts to sell, causing the prices to drop.
The market incorporates new information as soon as it becomes available
This means that stock prices are constantly adjusting to reflect the latest news and events. Because the market is efficient in that all known information is reflected in the price of a security.
Stock market averages must confirm each other
If one stock market average (e.g., the Dow Jones Industrial Average) is going up, but another one (e.g., the Dow Jones Transport Average) is going down, then this signals that the trend is not healthy and may reverse soon. It's important to note that averages can be misleading, and should only be used as a general guideline.
Trends get confirmed by volume
This means that the prevailing trend is more likely to continue if there is high volume backing it up. Volume indicates the level of interest in security and is, therefore, a good measure of market sentiment.
Trends exist until it is shown that they have ended
This means that a trend can continue long after it has been logically supposed to end. It's important to remember that nothing in the stock market is ever certain, and trends can always reverse at any time.
By understanding these six tenets, you will be able to better understand the trends that are happening in the stock market, and make more informed investment decisions.
Types of Crypto Charts
There are three main types of crypto trading charts: line, bar, and candlestick.
Line charts are the most basic type of chart and simply show the price movement of a cryptocurrency over time. They are created by connecting the closing prices of each candle on the chart. This makes it easy to see how the price has changed over time.
However, line charts can be very misleading because they don't show volume or other indicators. For this reason, they shouldn't be used to make trading decisions. Instead, use them to get an overview of the market sentiment and to spot trends.
Bar charts are one of the most popular ways to visualize data, and for good reason. They're easy to understand and can be used to compare data sets side-by-side. Bar charts show the opening, high, low, and closing prices for a given time period as rectangles or "bars".
This type of chart is good for spotting patterns and seeing how a price changes over time. However, bar charts also have their drawbacks. One of the biggest is that they can be hard to read when there are a lot of data points. Another is that they can be misleading if the data isn't properly scaled.
Still, bar charts have a lot going for them. They're simple, straightforward, and easy to interpret. In many cases, they're the best way to visualize data.
Candlestick charts are a helpful tool for analyzing cryptocurrency prices. They are better than the other two types of charts because they provide more information. However, they do have some drawbacks.
Candlestick charts are made up of four different parts: the body, the wick, the high price, and the low price. The body is the part of the candle that is filled in. The wick is the part of the candle that sticks out above and below the body. The high price is the highest point reached by the candle, and the low price is the lowest point reached by the candle.
The color of the body of the candle is important. A black body means that the price closed lower than it opened, while a white body means that the price closed higher than it opened. If the body of the candle is green, it means that the price went up during the time period. If the body of the candle is red, it means that the price went down during the time period.
The wick can also be colored. A black wick means that the price was higher at some point during the time period than it was at the end, while a white wick means that the price was lower at some point during the time period than it was at the end.
What Are Bullish & Bearish Trends?
The bullish trend is defined as a period in which the prices of cryptocurrency assets are on the rise. This is generally seen as a positive sign by traders, as it indicates that the market is healthy and growing.
However, it is important to note that bull markets can eventually turn bearish, so it is important to monitor the situation closely and be prepared to sell if necessary. Nevertheless, the bullish trend is generally seen as a good sign for the future of cryptocurrency trading.
In 2013, when Bitcoin was trading at around $100 per coin, one could have made a killing by investing in Cryptocurrency. In just a few months, the price of Bitcoin rose to over $1,000 per coin! This dramatic increase in value is just one example of a bullish trend in the history of Cryptocurrency trading.
This optimistic sentiment is often reflected in candlestick charts, which tend to show a lot of green candles (signifying price increases) during bullish periods. Conversely, red candles (indicating price decreases) are more common during bearish periods.
So, if you're looking to trade cryptocurrencies and you're seeing a lot of green candles in the near future, that's a good sign that the market is currently in a bullish mood.
A bearish trend is a general downward price movement. In cryptocurrency trading, a bearish trend typically refers to a prolonged period of time in which the prices of assets are consistently falling. This can be caused by various factors such as negative news about the asset, changes in regulations, or simply a lack of interest from buyers.
Bearish trends can last for extended periods of time and can have a significant impact on the value of an asset. For example, during a bearish trend, the value of Bitcoin (BTC) fell from over $19,000 USD in December 2017 to below $3,000 USD by December 2018 - a decrease of over 84%.
While bearish trends can difficult to weather for investors, they can also provide opportunities to buy assets at a lower price. By understanding the factors that cause bearish trends, investors can make more informed decisions about when to buy and sell assets.
However, there are some instances where the bearish trend can be seen as a positive sign. For example, if prices have been falling for some time and show no signs of recovery, it could be an indication that the market has reached its bottom and is about to start climbing again.
What Are Supports and Resistances?
In the financial world, the terms "support" and "resistance" refer to price levels where a stock or other asset has trouble breaking through. In other words, it's easy for the price to fall to a support level, but much harder for it to rise above a resistance level.
These concepts can be applied to crypto charts as well. For example, if Bitcoin falls below $10,000, that could be viewed as a support level. If it then starts rising again and breaks through $11,000, that would be considered a resistance level.
So how can you use this information to your advantage? Well, if you see an asset approaching a support or resistance level, that could be a time to buy or sell. Of course, you'll need to do your own research to make sure that the level is actually meaningful and not just a random fluctuation.
But if you can identify valid support and resistance levels, it can give you an edge in the market. So, keep an eye out for the next time you're looking at crypto charts!
What Are Different Time Frames in Cryptocurrency Charts?
Cryptocurrency traders use different time frames to analyze the market. Here are the most common time frames:
- Scalpers use a time frame of 10 minutes to 30 minutes. They buy and sell within this time frame, hoping to make a small profit on each trade.
- Day traders use a time frame of one day. They buy and sell cryptocurrencies within the same day, hoping to make a profit on each trade.
- Swing traders use a time frame of two days to two weeks. They buy and hold the trade for a few days to two weeks, hoping to make a larger profit on each trade.
- Positional traders use a time frame of weeks to 6 months to 12 months. They buy and hold the trade for a few weeks to 6 months to 12 months, hoping to make a larger profit on each trade.
- Investors use a time frame of more than one year. They buy and hold the investment for more than one year, hoping to make a large profit on each trade.
Pros & Cons of Cryptocurrency Trading Charts
Cryptocurrency trading charts are a great way to keep an eye on the market, but they also have their pros and cons. Here are a few of the benefits and drawbacks of using cryptocurrency trading charts:
|They help you stay informed about the market.||They can be misleading or inaccurate.|
|They help you stay informed about the market.||They can be difficult to interpret.|
|They can help you make more informed decisions about your investments.||They can be time-consuming to use properly.|
|They're easy to use and understand.||You may need to use multiple charts to get a comprehensive view of the market.|
What do all those numbers mean?
Those numbers on the chart are prices - specifically, they're closing prices. The closing price is the most recent price that an asset was traded at before the market closed. You'll also see numbers next to the candlesticks.
These are the asset's open, high, and low prices for that particular time period. The open price is the price that the asset was first traded at during that time period, while the high and low prices are the highest and lowest prices that the asset reached during that time period.
What do the different colors mean?
The colors on the chart represent different time periods. Black candlesticks typically represent the last 24 hours, red candlesticks represent the last 48 hours, green candlesticks represent the last week, and yellow candlesticks represent the last month.
Is there a difference between cryptocurrency charts and regular financial charts?
Yes and no. Cryptocurrency charts generally follow the same rules as regular financial charts, but there are a few key differences.
One difference is that cryptocurrency prices are often more volatile than traditional asset prices. Another difference is that cryptocurrency charts often include more information than regular financial charts.
Do I need to use a specific charting software?
These platforms allow you to access multiple exchanges from one place, which can be helpful if you're looking to trade on multiple exchanges. They also have a variety of features that can be helpful for technical analysis, such as indicators and drawing tools.
What is short-term trading?
Short-term trading is when you buy and sell assets within a relatively short period of time. typically, short-term traders aim to make quick profits by taking advantage of small price movements.
So, these are all the basic terminologies that you should know before getting started with Crypto charts. Now that you have a fair idea about how to read them, it’s time for you to put this knowledge into practice and make some profits in the process! Remember, practice makes perfect and if at first, you don’t succeed, try again!