If you are into trading and deal with cryptocurrencies, then it is important to know how to read crypto charts. Anyone who trades in the stock market needs to have the basic skill ofreading charts. Whether it is the stock market or the cryptocurrency markets, the charts help you in your trading activity. Charts mainly show two characteristics, price and volume. Price on a crypto chart shows changes in cost of the cryptocurrency over time. Volume shows how many units of the cryptocurrency have been traded.
There are two main charts used to trade cryptocurrencies – the line chart and the candlestick chart. Let’s take a look at what these charts are and how to read them.
1) Line chart
This is the simplest of charts and shows the movement of prices in the form of a line. A line moving up indicates an upward trend in the price of cryptocurrencies. Line sloping downwards shows a fall in prices. The line chart can be prepared for any duration. It may be for a year where it shows the movement of prices over the different months of a year. This is the chart used by investors to track the movement of the cryptocurrencies that they have purchased.
Those who do day trading (buying and selling currencies on the same day) would use a chart that shows variation in prices over a day. It shows variation in prices over minutes or seconds. Day traders use real-time charts that show the movement of prices at that instant. As prices can fluctuate within seconds, day traders need this kind of a chart.
The line chart below shows the movement of a cryptocurrency over a period of a year. The months of the year and the changes in prices are shown in this chart. The volume is also shown in the form of a bar graph. For each movement of price, the corresponding volume is shown.
Let’s understand how to read this chart.
From this chart, we can make out that the highest price of the cryptocurrency was at the end of June when the price nearly touched $13,000. The lowest price was at mid-March when the price fell below $3,000 and almost touched $2,000.
If you look at the chart, you can see that at the beginning of May, the prices of the cryptocurrency showed a sudden upward movement at $4,000. From then on, it kept moving up. Had you bought the cryptocurrency at that time, you could have earned a handsome profit. How would you have known that the price would go up? The answer lies in the volume of transactions. Look at the volume bar graph, you can see it shoot up to more than 30,000 transactions. Volume indicates that more people are buying. It is a sign that there is a definite upward trend. Had you known to read this trend, you could have made a lot of money.
When the volume bar is green, it indicates there are more buyers. When it is red, it indicates the trend is in favor of selling. Reading the price and volume from a line chart is just one way of reading a crypto-chart. Many other tools can be used. For instance, a moving average is a tool used in technical analysis to read price changes in a more systematic way. There are many such tools that technical analysis provides. Mastering technical analysis can help you read a crypto-chart well and understand the trends.
2) Candlestick chart
This is a favorite chart used by advanced traders to help them to understand market trends and predict which way the market moves. This chart uses a symbol called a candlestick. The symbol shows the high, low, opening, and closing prices. One candlestick represents a period of time, which could be a minute, an hour, a day, or even a month – depending on the type of chart used.
If the candlestick is green, it indicates that the closing price is more than the opening price. This means the trend is in favor of buyers. A red candlestick indicates that the closing price is less than the opening price, showing a trend in favor of sellers. Reading these candlesticks is a subject by itself and helps a trader to get a better understanding of the market. It is a preferred tool by traders to take trading decisions.
Candlesticks form many patterns that can indicate a change in trend. A smart trader or investor will spot this trend and take a quick decision that can help in earning profits. For example, take a look at this candlestick formation known as the hammer.
The hammer shows that prices fell low, but then again rose well above the low and closed above the opening price. This tells you that buyers overtook sellers and pushed the price upwards. If you spot such a candlestick on your chart and it is accompanied by good volume, then it is a sure sign of a bullish or strong upward trend. This indicates prices are going to go up. A candlestick chart doesn’t tell you only about prices and volumes, it even tells you about the psychology of traders. It helps you get an insight into the thinking process of other traders. It helps you get a feel of the general sentiment of the market.It must be noted that one sign by itself cannot be used to make a definite prediction. A seasoned trader will look for various signs on the chart to confirm what is happening.
All this shows that you can read the crypto chart in the best possible way by learning technical analysis. This subject equips you with tools to be able to read charts and understand the message the chart is trying to convey. Mastering technical analysis can help you become a good trader who is able to predict market trends and take decisions accordingly. This is a good way of making profits by reading crypto charts.