Cryptocurrency is making a name for itself as a viable alternative investment, especially with the recent booming of bitcoin and other cryptocurrencies.
If you’re interested in investing in crypto, You must know how to read cryptocurrency charts, this is an important first step. These charts help investors to analyze trends, determine buy-in prices and choose crypto coins that are likely to have the best chance of retaining value or increasing in value over time. The following information will help improve your understanding of how to read cryptocurrency charts.
Table Of Contents
- What Is a Cryptocurrency Chart?
- What Are Charts Used For?
- Why Should You Use Crypto Charts?
- How Are Cryptocurrency Charts Used?
- What Does a Crypto Chart Show?
- How Are Cryptocurrency Charts Created?
- Are There Different Types of Cryptocurrency Charts?
- What is Technical Analysis?
- Ways To Read Cryptocurrency Charts
- What Other Factors Should Be Considered While Reading Crypto Charts?
- Cryptocurrency Analysis Tools
What Is a Cryptocurrency Chart?
A chart contains different kind of information, and when this information is combined correctly you can make informed decisions. Some traders use only lines and others only bars, some prefer candlesticks or geometric indicators. Most successful traders combine all these tools into their strategy.
What Are Charts Used For?
Investors use different kinds of charting software to track the performance of their investments on various markets across the globe. Using this software can also assist you in determining when might be an ideal time to sell or cash in on your investment.
Once you are able to determine that your cryptocurrency has risen far enough, it’s time to sell the tokens so you can reap the benefits of your initial investment and then move forward with an eye towards attaining more stable Fiat currency (USD, EURO, etc.).
Why Should You Use Crypto Charts?
Cryptocurrency charts allow investors to track their investments over time. It also enables them to see how new coins perform against matured coins or established coins. This is known as relative performance analysis and helps in comparing how well a particular coin performed against another when compared based on value over a period of time. In addition, there’s no need for anyone to have any programming skills either as there are many online platforms that will allow you to use crypto charts without any coding or programming skills.
How Are Cryptocurrency Charts Used?
Crypto charts help investors track various aspects of the cryptocurrency market such as which coins have increased in value over time, how well new and upcoming cryptocurrencies perform against more established ones and which exchanges offer the best prices for your trade.
In addition, this Charts can also be used to determine where to buy or sell a coin based on price fluctuations. For example, if you notice one exchange is offering higher prices than others, it may be the ideal destination for buying up your next round of investments. You should keep an eye on other exchanges though so you aren’t left behind if the prices at your initial exchange change over time.
What Does a Crypto Chart Show?
Crypto charts are unique in the sense that they provide information on different aspects of your investment. The following information is readily available on these charts:
This displays how a coin has performed over a period of time, typically ranging from one day up to three months or more. It can also show how an entire market has changed as well.
There are also crypto charting platforms that allow you to display multiple coins at once and compare them against one another in order to determine which ones are performing best (or worst).
This gives investors the opportunity to decide whether investing in various types of coins will prove lucrative for their personal portfolio.
Volume refers to the number of coins being traded during a specific time period. This is very helpful for investors who are interested in monitoring how much activity there is at any given point in time.
Volume can be displayed on multiple exchanges and helps you determine whether or not a certain coin is gaining popularity, losing it or remaining stagnant over time.
3. Highs and lows
These refer to the highest and lowest points that a particular currency reached during a specified period of time, typically 24 hours.
Charts tend to show highs and lows with candles that either extend up from the bottom or down from the top, depending upon whether prices rose or fell throughout the day.
4. Color of Candles
Color of these candles varies as well, Red indicates falling prices while blue means rising value.
However, there are some platforms that use green for increases and red for decreases.
5. Market cap
This refers to the total value of all coins functioning within a blockchain network. It’s calculated by multiplying the current price per coin (PPC) with the circulating supply of coins available at any given time. With cryptocurrency charts, you are able to track how well your investment is growing over time when compared against other investors who may be using the same platform as you.
How Are Cryptocurrency Charts Created?
Crypto charts can be created in several different ways such as through market mining or simply by hand recording data obtained from online exchanges that offer live prices in order to make it easier for users to read and interpret what’s happening on the market. This is done by pulling in actual data from an online exchange that offers live data and converting it into a format that’s easy to read.
Are There Different Types of Cryptocurrency Charts?
Yes, there are several different types of charts available for beginners on how to read cryptocurrency charts, Ways to choose from including:
1. Bar candlestick
2. Volume-weighted average price (VWAP)
3. Line charting.
The type you use should be based on your personal preferences as well as the information you need to get out of the chart itself while also ensuring that the one you select works best with your preferred trading platform or exchanges. A line chart might provide all the necessary information for some people but not work as well for someone who is more interested in candlesticks.
What is Technical Analysis?
Technical analysis (TA) is a trading methodology that simply means analyzing the stock market charts. It was used to help optimize trades in the stock markets, but it can also be applied in cryptocurrency trading.
If there’s one thing I’ve learned from my experience on How To Read Cryptocurrency Charts, it’s this: TA (technical analysis) is an important tool in determining entry and exit points during the investment process, but do not rely on it for everything. It’s still possible that your investment will fail despite following TA rules, so keep this in mind and always do your own research.
Ways To Read Cryptocurrency Charts
Many new investors have trouble on how to read cryptocurrency charts and understanding what they portray. The strategy I find most effective is using multiple tools to evaluate how well a crypto is performing on each metric that matters. This allows you to compare performance against other coins in its category and timeframe with objective data, instead of trying to read into things which may or may not be relevant.
The following chart is an example of what many traders see when they open up Trading View and click on any coin’s chart:
1. Chart Period (also known as Timeframe)
The time period over which data has been collected or plotted on a chart can be changed by clicking anywhere within that time frame along the bottom axis of the graph, this will display a drop-down menu containing different periods available per trading pair.
For example, if you want to go back further than one year of data, you can either change the period manually or search manually for another time range using the enter key. Imposing multiple periods on a chart is common practice for traders and enables them to spot trends and seasonality in price movements.
2. Candle Width
This is how ‘wide’ each candle (also known as bars) is plotted on the chart, typically ranging from one to 100+ pips depending on your investment timeframe. A longer candle width means that a larger amount of price movement occurred during that crypto’s period.
3. Candle Color
This is how the color scheme in each candle (bar) is plotted on the chart, typically ranging from red/white to green, with white candles being those which began at a lower price than where it closed (upward ‘bull’ candles) and red being vice versa for downwards ‘bear’ candles.
If all the candles are red or green, you’re probably looking at an unrealistic chart which has no historical data and often times can be manipulated more frequently by traders and bots due to its low volume.
4. Order Book
Each bar represents how much demand there was for that coin during that period (price X volume), so if a candle is completely red, that means people were ‘selling’ the coin at that price. And vice versa for green candles representing buys (which are more common in less stable periods).
5. Candle Base
The lowest and highest point which the corresponding candle’s price touched during that period of time, it looks like two little dots on either side of each bar.
This ranges from 0-100% or higher depending on how volatile the market has been (refer back to #2 for an example) and should be used as another tool for determining entry points along with indicators, volume, and moving averages .
6. VOLUME / MA(moving average)
An important tool for determining whether a coin has been overbought (high volume) or oversold (low volume). The candlestick chart above shows how the price of BTC reacted to an extremely large green candle which had very low volume.
Relative Strength Index is used to determine when an asset is overbought and/or oversold in regard to its recent trading history.
Momentum indicator showing positive and negative trends with a signal line at the zero point between them, I personally don’t rely on this indicator much, but it can be useful due to its simplicity.
9. EMA (exponential moving average)
Exponential, not to be confused with the RSI indicator above , this one is used to ‘smooth out’ price movements to make them easier for traders and investors to interpret
10. Buy/Sell Indicator
These are easy, green means buy/go long (into uptrend) and red means sell/go short (into downtrend), like the candlesticks above but displayed on your chart as icons instead!
You might be wondering what the difference is between all these indicators / chart types.
Here’s a very brief explanation from my previous article about indicators
To give you an example of why certain indicators exist in relation to others, imagine sitting at the top of a tall building looking out onto the city below.
You can see everyone walking around, all their cars and traffic on the road, and various other objects moving at different speeds (one person running to catch a bus vs. someone just strolling).
What you’re seeing is a sectional view of what’s happening in an area, but if you were up there, how would you know where to get off?
Enter the indicators: they are ‘signposts’ along your journey telling you when to perform actions .
For example, an RSI indicator will let you know when it’s overbought or oversold by highlighting that region on your chart with either red or green after calculating how much positive or negative momentum exists for that period of time, but you need a moving average (MA) to tell you when it’s not overbought or oversold anymore so that you know how and when that RSI indicator can be trusted.
What Other Factors Should Be Considered While Reading Crypto Charts?
There are other factors that should be considered while trying to know How To Read Cryptocurrency Charts, especially if you don’t have access to trading with high transaction limits on at least a couple of exchanges in order to ensure that you are getting an up-to-date look at how things are going on the market rather than being stuck with only one source of data.
Some common factors to take into consideration include:
1. Your own unique trading style
What works best for others might not work as well for you so it’s important to assess your own skills and preferences when it comes to using crypto charts.
Some people are more interested in candlesticks while others prefer line charts.
Volume over time is often an important factor for some investors but not so much for others. This means there’s no one size fits all option when it comes to the type of chart you use, especially if you’re trading on your own rather than going with a group like a friend or family member who trades as well.
This refers to how far back in time you want your crypto charts to go. The further back you go, the more data is available for interpretation but that’s not always beneficial since most people aren’t interested in how things were doing 30 days ago, instead they’ll use whatever timeframe works best for their needs and limitations.
3. Market Cap Factors
Some exchanges have been known to manipulate prices by pumping up market caps while others are accused of dumping coins onto an exchange causing price decreases with no reason.
This means traders must be aware of what they’re getting into when it comes to using crypto charts. Some people are only interested in the price action but not so much market cap, which means overall market health and stability is also important to keep an eye out for while to know how to read cryptocurrency charts
4. Volume Information
This refers to how many coins or tokens are being traded at a given time and how often it’s happening, which can vary quite a bit depending on market conditions.
This is one factor that could be useful for those who want to learn how to read cryptocurrency charts in order to determine whether or not an exchange might be trying to manipulate the markets.
5. Historical data
Some people prefer having access to historical data that shows past performance in addition to the present, which could be useful for more experienced investors but might not offer much benefit for a beginner who just wants to learn how to read cryptocurrency charts.
6. Technical indicators
Technical indicators are used by many traders as tools for interpreting various aspects of crypto charts. While these can be learned and applied over time, they’re often best left to those with experience since botching up technical indicators is something that’s better avoided until you’ve had time and practice using them properly (and there’s plenty of opportunity for that when you’re an experienced trader).
7. Volume Profile
Volume profile is one type of chart analysis used by many traders in order to get a sense of where price might be heading in the next few days or weeks based on how much action has taken place at given levels.
This can be particularly useful since it shows what level price was able to stay above on its way down, which could be an indication that it might still have yet to hit new lows.
Channels are another type of display that show various aspects related to volume and trading activity such as where buy support and sell pressure is currently building up across different exchanges, which can help with getting familiar with crypto charts.
Cryptocurrency Analysis Tools
One of the best charting tools in the market, which has been used by many professional and semi-professional traders. It is a great tool to learn how to use charts for cryptocurrency trading.
2. Money Flow Indicator
Money Flow Indicator (MFI) is a technical indicator used in both the forex market and stock market to measure buying and selling pressure.
One of the most useful technical tools for traders is money flow indicator. It allows you to quickly see the balance between buyers and sellers on a chart. Money Flow Indicator (MFI) shows the strength of investors’ activity in a certain period.
The simplest thing you can do when it comes to learning how to read cryptocurrency charts is start paying attention to them and understanding what they’re telling you. You might also want to learn a little bit more about technical indicators, but process of doing so should be approached slowly and gradually as to not overburden yourself with too much information at once.
As you can see, even things that might look straightforward when it comes to how to read cryptocurrency charts can quickly get complicated. As such, you’ll need to be able to pay attention and put in some effort if you want to learn how to do so effectively. Although this might seem daunting at first, the end result could be worth the time spent doing so since it will allow for more efficient decision making (which is an important part of becoming a successful trader). The following image shows what a summary of various crypto chart displays looks like on TradingView’s “Real Time Chart” display panel option:
In order to know how to read cryptocurrency charts better, traders should start by trying out different types of chart displays available through various exchanges (such as on the TradingView platform , which also offers tutorials and a comprehensive dictionary).
This will help with getting familiar with how charts work in general, regardless of what type of market they’re tracking. It’s also recommended that traders check out some of the various cryptocurrency forums and chat rooms that are available through platforms such as Reddit , where there’s plenty to be learned about different trading strategies.
In addition to this, it can be helpful to subscribe to crypto news sources or follow certain analysts through social media channels (like Twitter) who post regular updates about the latest crypto developments then make sure you master the habit of knowing How To Read Cryptocurrency Chart, then you’ll become an export within months