How To Read Trading Charts Cryptocurrency: Tips In Analyzing Charts

Anyone can begin trading cryptocurrency, but not everyone will succeed. If you are interested to start trading, you will need the patience and discipline to know when to buy or sell a coin.

The first thing that you need to learn before trading is how to read trading charts for cryptocurrency. A lot of beginners get into trading without understanding any of the charts, and just make trades based on their gut feel and the visuals that they see on the chart. This is a rookie mistake that can potentially be costly.

There are many reliable trading platforms today that use similar charts. You can use the Bittrex platform, or you can learn how to read crypto charts in Binance. Before trading, make sure that you have signed up with a trading platform that works for you so you can learn how to read the charts.

Cryptocurrency Technical Analysis Charts

Once you are on a platform, before analyzing the chart, first look at the bid and ask charts. These charts reflect the real time market prices. You will see how much people are selling a certain coin, as well as how much they are buying a coin for. By analyzing these charts, you will be able to figure out what the current market prices are.

Technical analysis of cryptocurrency charts has quite a steep learning curve. However, understanding the basic theories on how to analyze these charts will go a long way for you to improve your trading and analysis skills.

Dow Theory

The Dow Theory is a form of technical analysis that was formulated and released in late 1800s by Charles Dow. This theory was formed to try to speculate how the stock market moves and forms trends.

Although the theory was made particularly for the stock market, it can be applied to the cryptocurrency market as well. There are six major points in the theory.

Markets have 3 Types of Movement

According to Dow, there are three types of movement in the market:

1. Main movement: This is the long-term outlook of the market, measured by how the market prices look over the course of a year. 
2. Medium swings: This is measured by how prices look over 10 days up to 3 months. 
3. Short swings: This is the shortest measure of movement, measuring how the market looks on an hourly basis.

Markets have 3 Major Phases

The three major phases of the market are the following:

1. Accumulation: Early investors purchase the stock before the rest of the market. 
2. Absorption: Prices begin to move because the majority of the public begins to purchase the stock as well. 
3. Distribution: Early investors from the accumulation phase begin to sell their stocks at a profit.

Market Price

The market price reflects all the current events of an economy. This includes any major economic changes, political turmoil, war, and more. All these have an effect on the historical and projected market price.

Average in markets must confirm each other.

Stocks that are related to each other should move together in the same trend, especially if these are directly affecting each other. Examples include solar energy, oil, and electronics.

Volume confirms trends.

Trends are mainly based on the volume of participants. For example, if a certain stock is being traded by just a few people, large price swings can happen that are difficult to predict and understand.

On the other hand, if stocks are traded by hundreds and thousands of people, the price swings that occur are more reliable because a larger volume of people have participated in it. This creates a clearer trend for the certain stock.

Trends exist until they don’t.

Trends are always there, whether upward or downward. The long-term trend is always the more reliable trend because this occurs over several years. It is very difficult to rely on short-term trends because of the volatility of the market. The safest bet is always to watch the long-term trend unfold.

Other Technical Indicators

Aside from the Dow Theory, there are also other technical indicators that can help you in the analysis.

1. Market Cap: The market cap is in line with the theory that volume confirms trends. If the cap is low, it is difficult to predict. If there is more activity, this is when trends begin to emerge. 
2. Relative strength index (RSI): The RSI compares the asset’s current price to its past performance. It is computed by taking the ratio of the average of days the asset was up and the average of days that the asset was down. The value of the RSI ranges from 0 to 100; greater than 70 means that the asset is likely to go down, and less than 30 means it is likely to go up. 
3. Support and Resistance: Support is the low end of the price of the stock that is hit multiple times before continuing at an upward trend. Resistance is the opposite of support; it is the high end of the price that is hit multiple times before falling. These indicators represent a point where either selling is beneficial, or purchasing is a bargain.

How to Read Crypto Charts

Crypto charts usually use two kinds of figures: bars or candlesticks. Both figures are usually displayed in green and red colors. Green, meaning that the crypto is on an upward trend, and red, meaning the crypto’s price is falling.

Conclusion

This was just an introduction on how to read trading charts cryptocurrency. There are more technical indicators and visual representations on crypto charts that you will be able to learn as you go along.