How to Read Cryptocurrency Charts

How to Read Cryptocurrency Charts

Traders have many tools at their disposal, but arguably the most important among them are charts. They allow you to see the dynamics of the assets, analyze trends, and make predictions on what is going to happen. But all of that is impossible if the trader in question can’t make heads or tails of the data he receives. To help our audience avoid that, the Changelly team wrote this short guide on what the relevant cryptocurrency charts are, how they work, and what you can find out from them. Now, let’s dive in!

What Is Technical Analysis

One of the most vital skills that every trader should have is the ability to conduct technical analysis. Whether it is for a certain asset or the crypto market as a whole, it can make or break your trading strategy. So, what is technical analysis exactly? It is an ability to evaluate trading assets and ascertain what opportunities they offer to traders. In order to do that, a trader analyzes the asset’s (or market’s) trading activity and its statistical trends. 

Technical analysis focuses on the trade volume and asset price, unlike its global counterpart, which concentrates on evaluating the asset on its business parameters. This results in mostly short-term trading strategies and signals, though it can also help with a broader analysis of the security’s strengths and weaknesses in the market.

As you can see, while technical analysis will not allow you to formulate long-term strategies by itself, it can help you to make fast decisions on what you’ve ascertained of the asset you are trading for. That in itself is extremely important for any trader, especially in volatile markets.

Analyzing Different Time Frames

It might be obvious, but still worth saying that different time frames are suitable for different types of trading. In cryptocurrency trading and charts, there are three types of time frames used: long-term, medium-term, and short-term. Each one favors different trading styles, has its own trend and triggers time frames. In the table below you can see which time frame is the best for certain trading style:

Position TradingWeekly TrendDaily Trigger
Long-term Time FrameSwing tradingDaily Trend4-hour Trigger
Medium-term Time FrameDay trading4-hour TrendHourly Trigger
Short-term Time FrameScalpingHourly Trend15-minute Trigger

With different styles and time frames come different trading strategies. After all, if you are swing trading, then you don’t need to make decisions as fast as those scalping. Even if in both cases you need to keep calm and make measured decisions, you have different trends to keep track of. Still, it is helpful to keep track of every time frame, as long-term cryptocurrency charts can show you a bigger picture, but short-term ones will allow you to notice the breakpoint of the trend emerging/ending. 

By the way, we’ve already published an article about day trading strategies

All in all, it depends on your trading style and your overall goal: for those who are here for a long haul, long-term time frames are more important than minute changes in trends. In contrast, those who want to make a quick profit from changes in trends, short-term time frames would be of a bigger interest.

Japanese Candlestick Cryptocurrency Charts

One of the most popular among cryptocurrency charts types, candlesticks provide enough information at a single glance. That is if you can read them. Usually, they allow you to see the minimum price of the asset for a certain time period, the maximum price, and the shift in the price. However, different types of candlestick cryptocurrency charts offer different information. Here you can see the basic explanation of common patterns, for more in-depth information you can visit Investopedia.

Hammer

Hammer Candlestick Charts

Hammer is a certain price pattern that traders who use candlestick charts notice. It happens when the assets’ price is much lower during the trade period than at its opening. Then, near the closing of the trade, it rises to the opening levels again. This forms a hammer-like shape in the chart, with a shadow twice as large as the main body. The shadow represents highs and lows of the asset during the trading period, while the main body represents the opening and closing prices.

Morning Star

Morning Star Canglestick Charts

Another candlestick charts pattern for trading, Morning Star is a trend that many traders use for their operations. It appears following a downward trend and signals that the price of the asset will rise soon. Traders often look for this reversal to begin, and then use other indicators and tools to confirm that this is indeed a Morning Star pattern.

Shooting Star

Shooting Start Candlestick Charts

A third common candlestick pattern that traders often use to ascertain where the trend will turn. Shooting Star is a bearish trend that happens when the price of the asset starts to advance after the opening, with almost no shadow formed beneath the main body of the chart. Then, at the closure, its price falls closer to the opening price. Usually, traders take Shooting Star as a signal that the price will start to fall soon, and plan their strategies accordingly. 

Evening Star

Evening Start Candlestick Charts

The fourth and final candlestick charts pattern for trading in our list, Evening Star is the opposite of the Morning Star. It is a bearish trend that happens on the price uptrend, signaling that the asset’s value soon will start to move downward. As you can guess, this pattern is often used by traders and analysts to predict the price drop on the market, so if your tools and observations see an emerging Evening Star trend, it might be wise to make appropriate countermeasures.

That’s it about the most common (and the most recognizable) candlestick patterns. Of course, there are many more trends that you need to keep an eye out for, so keep doing your own research on them!

Relative Strength Index

Relative Strength Index RSI

Relative Strength Index (RSI, for short) is one of the most basic tools that traders have, and also one of the most versatile ones. It is a momentum indicator that measures whether the asset was overbought or oversold and the magnitude of it if there is any. It is typically depicted as an oscillator graph (a moving line graph) with values ranging between 0 and 100. The higher is the value, the more is the asset overbought, and the opposite for oversold assets.

Generally, it is believed that RSI with a value of 70 and higher means that the asset is overbought and is due for a trend reversal and/or price corrective pullback soon. And the RSI value of 30 and lower means that the asset is oversold, with the same possible consequences.

All in all, RSI is a vital indicator that helps traders to forecast a bullish/bearish trend before it begins and to start preparing for it.

Support and Resistance in Trading

Support and Resistance

Support and Resistance levels are concepts in cryptocurrency charts that allow traders to build their strategies based on the evaluated range of the prices between said levels. Basically, they denominate the highest/lowest price that the asset can practically attain during the observed time period.

Thus, Support is a price level where the downtrend is expected to stop and rebound due to the increased demand and interest in the asset. Resistance, at the same time, is the opposite, a level where the uptrend will most likely rebound, and the asset’s price will start to drop.

These levels are usually considered as a good entry and exit points, allowing traders to get the most value out of their assets, working equally well for long and short traders. It also allows for betting on whether the trend will continue or rebound, with minimal losses in case of the lost bet, or high profit for the right guess. Overall, a useful prediction tool that helps traders to develop and implement their strategies with minimum risks.

Cryptocurrency Market Cap

An easy to guess, but nonetheless important cryptocurrency trading term, Cryptocurrency Market Capitalization, describes a metric that allows traders to measure how big is crypto in question. It is calculated by taking the current amount of tokens or coins in circulation and multiplying them at their market price. So, if there are 1,000,000 coins $15 each, it will mean that its Market Cap is $15,000,000.

You should note that Market Cap is not the same as the coin’s volume, liquidity, or how much money is in the market currently. After all, crypto prices tend to change, which doesn’t mean that there is money inflow or drain on the market. 

What is Market Cap in Cryptocurrency?

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Bottom Line

For now, we finish our guide about the hows and whys of cryptocurrency charts and their role in trading. As you can see, while it might seem intimidating at first, most of the basics given here are intuitive and easy to understand once you start trading. While some concepts and points might seem unnecessary to you, remember that basics like this can make a difference between you losing your money and making a profit.

After all, reading cryptocurrency charts will allow you to notice trends and take advantage of them before they can ruin your strategy. So keep an eye out for sudden market changes, and learn more about trading with Changelly!


About Changelly

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