How to Read Crypto ChartsJanuary 10, 2022
When starting out in the digital currency markets, one of the most important first steps to make as a trader is understanding how to read crypto charts.
These charts are a form of technical analysis and can help investors predict potential future asset price movements and better identify market trends.
Indeed, crypto live charts make up a key part of any trading strategy and they are helpful to beginner traders, as well as professional, more experienced market movers.
Developing the requisite skills to get the full benefit out of this technical analysis tool is certainly an art form and one that requires patience and a dedication to learning.
In this article, we will be taking a deeper dive into the process of reading crypto charts, including an overview of what they are, the types of charts in existence, and how you can make the most out of them in your day-to-day trading.
What is a Crypto Chart?
A crypto live chart is a graphical representation of patterns relating to historical price, volumes, and time intervals.
These charts can be altered and set to specific timeframes, which helps with the gathering of specific information or data relevant to an investor’s trading strategy.
Traders that manage to incorporate reading crypto charts into their routine have the potential to make better and more infrared trading decisions, much like the way technical charts help traders pick commodities.
Types of Crypto Charts
There are several types of crypto live charts currently available to crypto traders, with three main ones being the most popular chart method of choice: line, bar, and candlestick.
Each of these widely used chart types will be examined in more detail below, in order to give a better understanding of what they are and how they can be best utilised.
- Line Charts
A line chart is a 2D chart which illustrates the closing price as the single input across different timescale points.
This chart type was the original method used within the financial markets, due to its simplicity, as it represents the price via a single, continuous line.
It reduces price volatility throughout the day and offers a clear overall picture of the daily closing rate as it depicts only the closing price of an asset.
The main advantage of a line chart is that it is simple to use and easy to understand, meaning that it is suitable for traders of all backgrounds and experience types.
- Bar Charts
Bar charts are another popular choice with crypto traders, but unlike line charts they plot the opening, highest, lowest, and closing prices for a specific timeframe.
On these charts, the price is represented by the vertical axis and the time is demonstrated by the horizontal axis, with most one-year charts using one-day bars.
They are otherwise known as range bar charts, which refers to each new bar being based on price movement, rather than time units, such as hours or days.
The range is calculated as the difference between the highest and lowest price on a bar.
- Candlestick Charts
A candlestick chart is in many ways similar to a bar chart, as it plots the highest, lowest, opening, and closing prices, but they are far more visually expressive.
This type of chart indicates whether the movement in the price over a given time period is positive or negative, and to what extent.
Each candlestick is made up of a body and wicks, with the body representing the opening and closing prices. The top wick illustrates the highest price and the bottom wick the lowest price.
Candlestick charts provide much clearer information about price trend and volatility than bar charts, while the shape and colour of the candles can offer clues as to potential future market movement.
Support and Resistance Levels
When presented with the small matter of how to read crypto charts, the use of support and resistance levels can make things easier for traders.
Support levels are defined as price points during rate pullbacks denoting where the cryptocurrency is expected to halt, due to increased buying interest at a particular level.
Meanwhile, resistance levels are price points which represent a concentrated selling interest, and like support levels, they can be identified via trendlines.
With regards to an uptrend, a line is drawn using the lowest and next-lowest point in a specified timeframe of a cryptocurrency, with levels touching this trendline viewed as support.
Conversely, when the price is on the downtrend, traders should pay close attention to a series of declining peaks and should map this decline by connecting them together with a trendline.
A moving average is a simple, but extremely useful technical analysis tool that evens out price data through the creation of a constantly updated average price.
They are most commonly used by investors to identify trend direction, as well as to chart support and resistance levels.
Moving averages can be constructed in a variety of different ways, and they are favoured because they simplify the content of a chart by cutting out irrelevant underlying trends or periods of short-term volatility that do little to affect or influence the overall trend.
The truth is that there are several good ways in which a crypto trader can utilise technical analysis tools such as charts to boost their trading strategy.
While most chart types are simple to grasp, it is useful to gain a thorough understanding of their features and what they can offer, in terms of data and information.
Crypto markets are like an asset class, they require proper studying. Charts such as the ones listed above exist to offer an indication of what has happened in the past, so they should be correctly used, to minimise trading losses.