How to read Crypto Charts – Ultimate Guide, Part 1.

Whether you are planning to buy a Bitcoin or already own one, sooner or later, you’ll want to delve into the crypto charts. Since trading is integral to the cryptocurrency realm, learning how to read crypto charts is a crucial skill you’ll have to master.

The world of crypto charts can be overwhelming for a newcomer, especially with all the data, charts, analysis, statistics, and tools. It’s like you are hit with a million buzz words! Though it’s similar to the traditional stock market analysis in many ways, reading crypto charts is a whole new ballgame.

In this guide, we will go through the basics of how to read various cryptocurrency charts. So, let’s get started.

Here’s what you’ll learn in this guide:

What is Technical Analysis?

Technical analysis of crypto charts is a process that involves using tools/methods to predict the possible price movement of a currency pair. Just like stocks/shares, there are leading and lagging indicators that are applied with studies to help you forecast the Bitcoin price movement. Technical analysis can be daunting with all its tools and studies, but we’ll make it easy to digest.

Time Frames for Crypto Charts

How to read Crypto Charts - Ultimate Guide, Part 1. 2

Start by selecting a time frame to examine a particular chart. In order to apply studies, a specific time period must be chosen in which to study the said cryptocurrency. Some popular time frames most traders use 15 minutes chart, hourly chart, daily chart, and weekly chart.

Time frames are totally personal choice. They reflect a trader’s perspective of the market and can be classified into following categories:

  • Intra-day traders – When you open and close the trades within the same day, small duration time frames are used. Hourly or fifteen-minute charts are preferred to catch price movements.
  • Long-term traders – Traders hold their position for long durations ranging from a few days to a few weeks. Here, 4-hour, daily, or weekly charts are preferred.
  • Investor – When you have to invest for many months or say years, monthly or weekly charts are used. These are for investors who hold on to their positions for many years.

Cryptocurrency Market Cap

To calculate the market cap of a crypto coin, use the formula mentioned below:

Market cap of a cryptocurrency = Total Circulating Supply X Price of each coin

Obviously, you don’t have to go through all these calculations every time. Simply go to CoinMarketCap and browse through 100 top cryptocurrencies.

The market cap figure gives you a fair indication of a coin’s stability over time. As seen in the chart below, Bitcoin’s market cap is pretty stable. A volatile market cap indicates abrupt price movements that can present challenges to the long term investor.

The Japanese Candlestick Charts

How to read Crypto Charts - Ultimate Guide, Part 1. 3

Perhaps, the one chart that’s redefined trading is the famed ‘Candlestick Chart.’ These are highly informative and can help make quick trading decisions. Each chart consists of open price, close price, high and low made in that particular time frame.

Additionally, the color of the candle shows bearish and bullish price movements. Green candle shows a bullish movement while the red candle shows a downturn or bearish movement of the asset. A rotating top shows that the price is indecisive and is moving within an extremely small range. A long candle represents a fairly wide movement range. In red candle, the upper shadow represents open price, and the lower shadow reflects the closing price and vice versa for the green candle.

Relative Strength Index

How to read Crypto Charts - Ultimate Guide, Part 1. 4

Relative Strength Index or RSI, is a well known lagging indicator. It depicts the speed and strength of an asset by analyzing its current and past performance. Basically, the latest losses and gains are compared to calculate whether an asset is oversold or overbought. RSI levels help decide entry and exit points for a trade.

RSI can vary from 0 to 100. Theoretically, if an asset shows RSI above 70, it has entered ‘overbought’ territory; meaning it has been overvalued due to excessive buying. On the contrary, if RSI goes below 30, the asset is classified as ‘oversold,’ and there’s a high probability that buying will start that can push its value up.

RSI is a pretty helpful tool that must be used in conjunction with other technical analysis. It is best combined with ‘Bollinger Bands’, simple, and exponential moving average. However, it is a lagging indicator and thus represents values that have already been discounted by the market. If read incorrectly, it can generate false buy and sell signals.

Volume

How to read Crypto Charts - Ultimate Guide, Part 1. 5

Volume is crucial for intra-day traders or people who open and close their trading positions on the same day. It shows how many traders are currently trading in a particular asset. Simply put, a long volume bar shows excessive selling or buying pressure on the asset. In color terms, a green bar reflects the high interest and thus buying significance. On the other hand, a red bar shows less interest in the coin and may indicate probable selling.

Money Flow Indicator

How to read Crypto Charts - Ultimate Guide, Part 1. 6

Chaikin Money Flow indicator is an indicator that shows institutional buying and selling levels. It is preferred over volume indicator since it shows large scale buying and selling by institutions, which in turn shows where big money is moving.

Chaikin Money Flow (CMF) oscillates in the range of -1 and +1. The extreme ends are touched very rarely. Ideally, it moves in the range of -0.50 and +0.50, with 0 being the centerline. Typically, a rally is shown by levels higher than zero lines. Contrary to this, when levels drop below zero lines, the Chaikin volume indicator drops below zero. Positive CMF indicates the start of an uptrend, but a negative CMF shows a falling uptrend or signals the start of a downtrend.

Crypto Fear and Greed Index

How to read Crypto Charts - Ultimate Guide, Part 1. 7

The crypto fear and greed index combines multiple technical analysis tools in one graph to display a valuation depicting greed and fear levels. This sentiment indicator is a good reflector of the market’s participation quality and thus display Bitcoin buying exuberance or bear market despair.

When sentiment shows a value under 20, fear has gripped the market, and an asset is being sold indiscriminately. Extreme selling can indicate a turnaround and can be a good entry point. On the other hand, a value above 50 shows renewed buying an interest in the coin. Highly bullish levels indicate exuberance and can be a good exit point to book profits. So, as a contrarian indicator, there’s no match for fear and greed index.

Trend Lines

How to read Crypto Charts - Ultimate Guide, Part 1. 8

The popular saying, ‘Trend is your Friend,’ originates from trend lines. These lines represent the very basic concepts of crypto charts. Learning to draw trend lines can help you ace how to read crypto charts. Technically, a trend line is a straight line connecting two price points on a chart and can represent support and resistance levels. These are of two types:

  • Downward trending line – It has a downward slope and is made by joining the red candlestick’s upper shadows. If the price remains below the down-trend line, it indicates a bearish trend.
  • Upward trending line – It has a positive slope and is made by joining the green candle’s lower shadow. This line shows the support levels, and all movement above this line indicates a bullish trend.

There are also validating trending lines that provide further information about the trend. Generally, a trend line should pass through two points while a third point can be the validating point that confirms the accuracy of the trend.

Miscellaneous Technical indicators

Bollinger Bands

Here a set of lines plot two standard deviations away from a simple moving average line. Narrowing of these bands signifies less volume and volatility or simply puts a – limited price range. On the other hand, the widening of the band shows a wider price range and higher volatility.

Simple Moving Averages

The simple moving average is pretty easy! If the line moves up, it shows an uptrend and vice versa. These lines are used to find the direction of the upcoming trend. SMA 20 indicates short term trend, SMA 50 displays intermediate trend, and SMA 200 shows long term direction of the asset.

Moving Average Convergence Divergence (MACD)

The moving average convergence divergence (MACD) is used to identify bearish or bullish momentum. Read the signal line to see if it crosses over or under the MACD indicator.

A cross above the line generates a buy signal while a crossover below the line indicates its time to sell.

Updates/Developments – 21 Nov 2019

 

Conclusion

Above we have shown you how to read crypto charts with various tools and indicators. Technical analysis is a vast field involving hundreds of indicators, analysis and tools. However, armed with these basic methods, you can surely decipher a chart and take enlightened decisions.

Remember, these indicators and tools must be combined with proper analysis and shouldn’t be used alone. For a start, try to apply the above concepts on daily Bitcoin charts, and soon, you will see patterns emerge from your crude analysis. Refine your approach to arrive at definitive price movements and ultimately earn profits.

Hopefully, our guide has helped you learn how to read crypto charts! If you have something more to share, we would be glad to hear it in the comments.

FAQs

What are the methods for predicting price trends?

Price trend prediction is a comprehensive study involving many parameters. Fundamental and technical analysis are employed to predict future prices. Fundamental factors include market forces, regulations, economic factors, and associated financial issues. Technical analysis involves studying charts, applying methodologies, historical price analysis, and deploying tools.

Where to find Bitcoin price charts?

Having access to good interactive charts is key to undertaking the technical analysis. A useful place to start is charts.bitcoin.com and investing.com. They offer interactive charts with real-time information and integrated technical studies.

What is a candlestick chart?/

Japanese candlestick charts are the most widely used patterns to predict price movement. These elaborate patterns describe extensive information in small figures. Users can check the opening price, closing price, bearish or bullish movements, and stagnation just with a single candle.

Does my broker or exchange provide charts?

Yes, most brokers provide cryptocurrency built-in with their trading platforms. Most online trading platforms, such as Binance and Bitmart, provide web-based charts that are interactive and offer all the tools in the charts.

What is a trend line and what does it do? New!

A big part of learning how to read crypto charts is understanding trend lines. Drawing trend lines helps us in identifying and confirming trends.  So, what is the trend line? A trend line is a straight line that connects at least two price points and can extend into becoming a line of support or resistance.