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Cryptocurrency: Learn How to Read Crypto Charts

16 August 20226 mins read by Angel One
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What is Technical Analysis?

Technical analysis is a method or tool used to predict the future price movements of a cryptocurrency. The better one is at conducting technical analysis, the better is the market reading.

However, for sound technical analysis, you need to know how to examine crypto charts. The following sections contain the various elements of crypto charts that interested crypto traders must know about.

What are Different Types of Crypto Charts?

  1. Line chart

In a line chart, a line connects together to show the closing price as a single input across various timelines. This chart is 2D in nature and represents the asset price using a continuous, single line.

Line chart was the first of its kind to be used in financial markets. The advantage of this chart is that it provides reduced volatility of prices and paints a clearer picture by depicting the asset’s closing price.

A line chart is preferred by several traders worldwide because it is convenient to use.

  1. Candlestick chart

The second most frequently used crypto chart is the Japanese candlestick chart. Analysts prefer this because of the additional information that it provides.

The candles here are mainly represented with two colours – green and red.

A red candle indicates that the closing price was lower than the opening price in a timeframe. This suggests that the asset’s price fell during a particular time period.

On the other hand, a green candle indicates that the closing price was higher than the opening price, indicating an increase in asset price during the timeframe.

This graphical representation extends four inputs, particularly:

  • Open
  • High
  • Close
  • Low

Candlestick charts provide added information about trader psychology. The highs and lows in a trading timeframe represent the sentiments of the buyers and sellers.

Further, professional traders predict asset prices and ascertain market sentiment by using various candlestick patterns. They are mainly classified into two categories:

  • Bearish reversal patterns
  • Bullish reversal patterns

The most common bullish reversal signs are:

  • Hammer candle pattern
  • Bullish engulfing pattern
  • Morning star

Some of the common bearish patterns are:

  • Shooting star pattern
  • Bearish engulfing candle pattern
  • Evening star

Let us now understand the selling and buying zones with support and resistance.

What are Support and Resistance?

Support and resistance are essential components in understanding crypto price charts. They are also crucial in understanding technical analysis.

Both support and resistance can be diagonal, vertical, horizontal or rising.

Support

Support levels are exchange areas where orders may result in buy orders activating needed strength to prompt a reversal.

These levels are the areas that have formerly witnessed multiple actions, such as former resistance. Further, these levels often fail to hold for longer times, resulting in support initiation at even lower levels.

Resistance

Acting similarly to support, resistance levels stop prices from reaching higher instead of lower. After price breaks through support, oftentimes, it comes back to re-establish a previous resistance in new areas of support and vice versa.

What Exactly is Dow Theory?

At higher levels, Dow Theory narrates market trends and their typical behaviour. It provides several signals that can be used to outline the primary market trend. Traders can then use the primary market trend to make trading decisions.

As per this theory, the market has to consider every aspect during its pricing. The prices of current assets reflect all prior, upcoming and existing details of a stock. Meaning, analysts can simply focus on the coin’s price rather than each variable that alters the price of the coin.

Further, here are the different principles of the Dow Theory:

  • The market consists of three movements.
  • Significant trends in the market have three phases.
  • The market includes new details as soon as they become available.
  • Averages in the stock market must conform with each other.
  • Volume confirms trends.
  • Trends exist till the time they end.

The crypto market goes up and down in different patterns. If traders can detect these patterns, investment becomes convenient.

Bottom Line

When the above-mentioned components are used in unison, traders benefit in the long run. More importantly, to make the most out of crypto trading, one must be focused, patient and disciplined. While these patterns and terminologies will help you set foot in this market, you must also choose an efficient and safe trading platform.

Frequently Asked Questions

  1. What are the time frames for crypto charts?

Different time frames can provide different information. One can get different time frames for crypto charts. In this regard, some traders look for hourly charts, 15-minute charts or a 1-day chart. Long term holders must seek long time charts.

  1. What does the market cap of a cryptocurrency indicate?

A cryptocurrency’s market cap is a solid indicator of its stability. One can calculate it by considering the overall circulating supply of the currency and then multiplying it with the coin’s price.

  1. What are a few crypto technical indicators?

Moving Average Convergence Divergence, Relative Strength Index, Bollinger Bands and Fibonacci Retracement and Extension Levels are some of the standard technical analysis tools for cryptocurrencies.

Disclaimer: Angel One Limited does not endorse investment and trade in cryptocurrencies. This article is only for education and information purposes.

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