How To Read Crypto Charts - a Technical Analysis of Bitcoin
Crypto charts can be a bit intimidating. There are so many numbers and lines on the screen it is hard to know where to start! In this article, we'll teach you how to read Bitcoin charts so that you're confidently investing in Bitcoin and know when it's the right time to make your move.
What are Crypto Charts?
Crypto charts are a way of representing price movements for cryptocurrencies. They are used to give investors an easy overview of the market and what's going on with Bitcoin at any given moment. You'll likely see them listed as a candlestick chart, which uses candlestick figures to represent the changes in price between closed, open, high, and low prices. This will help you see what is happening at a quick glance when viewing cryptocurrency on a daily, weekly, or monthly basis.
The Dow Theory: Six Basic Tenets
Learning the Dow Theory will help you have a better understanding of technical analysis. Essentially, the theory considers every factor during its pricing to ensure it matches what's happening in the market. Since trends will likely repeat themselves, it's possible to understand and predict the behavior of the market, allowing you to make smart strategic moves when it comes to your investment. Here are the six tenets of the Dow Theory.
1. The market has three movements
The market generally has three movements including:
- Main Movement: This is a major movement or trend happening in the market. It could include a bearish or bullish trend and could last anywhere from a few months to a few years.
- Medium Swing: The medium swing is a reaction to something happening in the market, such as news or new releases. This type of trend could last anywhere from a few days to a few months. It's usual to have immediate spikes or drops, which then recover and follow the same path as the main movement.
- Minor Movement: This is the shortest swing in the market and can last anywhere from a few hours to a few months. Speculation of the market is the leading cause of this short-term movement.
These movements can either happen separately from each other or occur at the same time.
2. Market trends have three passes
There are three main phases that market trends seem to follow, which include the accumulation phase, absorption phase, and distribution phase.
- Accumulation Phase: The accumulation phase is when investors who have researched the asset start to make changes to their investment by either purchasing or selling, which goes against popular opinion. There won't be much, if any, change in the market price because knowledgeable investors make up the minority of the market.
- Absorption Phase: After enough initial investors start to sell or purchase the asset, the rest of the market will begin to notice and hop on the bandwagon. This will continue until the entire market begins to create the same opinion around the sale or purchase.
- Distribution Phase: During the distribution phase, prices and volume will start to fall. This is because those original investors will sell their holdings to the market.
3. All news is discounted by the stock market
As soon as information is released to the public, it will be analyzed and then reflected in price movements. This price will reflect product initiatives, political news, earning expectations, and fears and hopes of the market. This is all integrated together to create the current price of the asset.
4. The averages of the stock market need to match each other
If one company uses another companies’ products or services to serve their market, then it would only make sense that as the first company increases in revenue, so would the second company. Therefore, both companies should be moving in the same direction. If they are not, it might be a sign that the market will change shortly.
5. Volume confirms trends
One essential factor in recognizing how a market will shift or change during major trends is recognizing price signals. This means that the price and volume will decrease when there is a downtrend while an uptrend should increase the price and volume.
6. Trends exist until signals prove they’ve ended
Although trends can exist for years, they will eventually come to an end. This is either caused by a major news event or the market becoming saturated with the product and service of that company. Regardless, the market will remain trending until there are definite signals that they've ended, which can be hard to determine.
Applying Technical Analysis on Bitcoin Charts
Technical analysis refers to the process of using tools to predict how cryptocurrency is likely to move in the future. This helps you to understand the market more deeply. It's a method commonly used in the stock exchange but can be applied to other markets, especially when looking at crypto charts.
Time Frames for Reading Cryptocurrency Charts
When you're analyzing a cryptocurrency price chart, it's essential to understand the time frame you wish to use. Some of these options include a 15-minute chart, 4-hour chart, hourly, daily, or even a weekly chart. Of course, the time frame you'll want to use depends on whether you're a long-term trader or a day trader as you'll need different information to make an informed decision.
Day Trading vs. Long-term Trading
Day trading refers to the process of buying and selling within a 24-hour period while long-term traders hold onto their assets for weeks, months, or even years. This means that day traders will be interested in different information than long-term traders.
Short-term traders will want to check the 15-minute and hourly chart analysis because they'll want to ensure that they're purchasing during an uptrend to continue earning income and sell at the high point of the day. These minor trades will add up, creating revenue for the trader.
Long-term traders will want to view longer timetables because they'll be looking at the big picture. They're not concerned with hourly price movements but more so where prices are heading on a day-to-day or weekly basis.
Market Capitalization - What is the market cap of a coin?
Market capitalization is one of the most important factors to consider when you're looking at cryptocurrency charts. This number represents the price of each coin plus how much of the supply is currently circulating in the market. The exact equation looks like this: Coin Price x Total Supply = Market Capitalization.
For example, if there are 10,000 coins in circulation and each coin is worth $5, the market capitalization will equal $50,000. The market cap is essential because it helps you understand how stable the currency is on the market. For example, when looking at the Bitcoin market cap, you can see that it's been pretty consistent in its fluctuation than other unstable coins in the market.
What are Japanese Candlestick Charts?
The most popular cryptocurrency chart is the Japanese Candlestick Charts. These are known as candlestick charts because each indicator looks like they're made up of a candlestick. The top part is the wick and represents how high the price went during a specific time period while the bottom wick represents the lowest price.
There are two types of candlesticks: red and green candlesticks. In a red candlestick, the upper shadow is the opening price while the lower shadow is the closing price, meaning that the price went down during the day, showing you how the market turned. The green candlestick shows the opposite, with the upper shadow showing the closing price and the lower shadow the opening price, indicating that the price increased during the day.
This will help you predict how the market will fluctuate and identify trends. Here are the three most popular patterns that can be predicted on your candlestick graph:
There are many bullish patterns, but the most common include:
- Hammer: The hammer looks like a long line with a tiny green square at the top. There is almost no upper shadow showing on the hammer. This means that while the day started with sellers controlling the price and dropping it during the day, a surge of buyers came in towards the end to increase the price causing the closing price to be higher than the opening price.
- Morning Star: The morning star is recognized by three candles. The first candle will look bearish, the second has almost a nonexistent range, looking like a small cross, while the third will show growth. The first candle shows that the sellers took control, the second candle cancels out, and the third candle shows that buyers closed out with a higher price.
There are many bearish patterns, but the most common include:
- Shooting Star: The shooting star looks like a stick with a rectangle located at the bottom. You won't see any lower shadow. It means that buyers have controlled the market and increased the price, but there was pressure towards the end of the day, dropping the closing price lower than the morning.
- Evening Star: The evening star looks like the opposite of the morning star and is represented by three candlesticks. The first candle will look bullish while the second has almost a nonexistent range, looking like a small cross, and the third has a bearish close. The first candle shows that the buyers took control, the second candle cancels each other out, and the third candle shows sellers closed out with a lower price.
A reversal pattern indicates that there will be some type of change in direction, which might mean it will change from a falling market to a rising market. This type of pattern can be used to predict movement and help you plan your trades. Two unique reversal patterns include:
- Head & Shoulders Pattern: This is one of the most unique patterns you might see on the market. With this pattern, you'll be able to see two shoulders with a tall peak in the middle, looking similar to someone's head and shoulders. This pattern can help predict significant price breaks, one on each shoulder and the head. After the price breaks the neckline, you should consider it to be a reversal signal.
- Pin Bar Candlestick: This powerful candlestick starts with long tails at the bottom of the candle. They are also called wicks. The candle's body is between open and closed prices, but it can sometimes have a small tail on top too. Bullish Pin Bars happen after a significant trend down and signal an opportunity to buy soon because they indicate that prices will start going back up quickly.
What are resistance and support levels?
Resistance and support are two of the most important concepts in technical analysis. Once a trend's support or resistance levels are established, they become predetermined levels at which the price of an asset tends to reverse its course. As a result, it's common for traders to sell at resistance and buy at the support level.
Support levels are where the price tends to stop falling. This means that the price won't fall past this level and will bounce back up soon after touching it. Support can also act as an area where traders buy at lower prices which causes them to increase in value over time, but they aren't always guaranteed to do so.
The resistance level is the opposite of support, which means it's where the price tends to fall after rising. It acts like a ceiling that prevents the price from growing higher than this level and then dropping again. This is indicative that the prices are falling, so they can either sell at the height or hold on through the next dip.
In cryptocurrency, the trending line refers to lines that connect specific points together. They are at the top of a chart and show where prices have risen or fallen over time. These lines can be used to predict future movements on trends, but they aren't precise indicators all of the time, so you should avoid relying on them entirely when making decisions about your trades.
Upward Trending Lines
Upward trending lines represent a market that is pushing prices higher, which means buyers are in control, and the price will likely continue to rise.
Downward Trending Lines
As you can probably guess, downward trending lines represent a falling market where sellers have taken over, and there's more pressure towards lower prices.
Sideways trend lines are also known as horizontal trend lines. This is because they aren't trending up or down but staying in the same place over time. This means that prices will remain around this level and not change too much since there is no momentum pushing it either way.
Multiple Trending lines
Multiple trending lines happen when the market is trending in more than one direction. For example, it can be up and down or left to right depending on where they are located relative to each other. When you see these lines converge together, this usually indicates a change in trend, so watch for that carefully because it could signal an upcoming reversal of prices.
Important Chart Patterns
Triangle chart patterns are formed by the price moving between two levels. They are commonly called ascending or descending triangles, depending on where they start and end. If you can see both lines point upwards, it's an ascending triangle, which means that prices will likely rise soon because all the buyers push them higher over time. On the other hand, a descending triangle is formed by a downward sloping trend line meeting with a horizontal trend line. This means that prices will likely fall because of all the sellers pushing them lower over time.
In some cases, wedge chart patterns are similar to triangles, but they have slanted lines instead of straight ones. They can either represent a bearish or a bullish price reversal, depending on how they look. The lines can point downwards, which means that prices will continue to fall or upwards where buyers gain the upper hand and push them higher soon after.
A flag pattern is created when prices move sideways for an extended time before they continue in their original direction again. This could identify the possible continuation of a trend that has once again restarted or an opposite trend. Therefore, it's essential to notice a flag pattern before a possible price increase to take advantage of your trade.
Cup and Handle
A cup and handle pricing pattern is a bullish continuation pattern that looks like a cup with the handle pointing slightly downwards. They are an indication of a bullish trend and can signal a long-term opportunity. You'll want to stop buying above the handle of the pattern.
There are a lot of different technical indicators that have been developed over the years to help you predict future market movements. The most common technical indicators include:
Moving Averages (MA)
Moving averages are a great way to identify trends and see where they are located in relation to the price. They use historical data from previous market movements, which means that you can get a better idea of what is going on with your trades when using them instead of focusing on the interruption of short-term price jumps.
The stochastic oscillator is an indicator that uses both momentum and volume to measure market activity. It's a great way to figure out the strength of buying or selling pressure that affects prices at any given time. It can indicate either an overbought or an oversold market, resulting in a rally or corrector.
Average Directional Indexes (ADX)
The average directional index is a tad different from the other indicators that help to show trends. Instead, it helps to show how strong the current trend will be. If spotted correctly, it can help you know when the trend is going to start or end, allowing you to make the right decision on whether or not to buy, sell, or hold.
Relative Strength Index (RSI)
The relative strength index helps traders the most when comparing the current price of an asset with its past performance. The idea is that you can figure out whether or not there are any significant changes in momentum before they happen, making it easier for you to predict where prices will go from here.
Moving Average Convergence Divergences (MACD)
The moving average convergence divergences (MACD) is a momentum indicator that you can use to spot trends and reversals. The idea behind the convergence divergences is that when they are created, it means prices will soon change direction in either an upward or downward trend along with increased volatility for both directions.
Bollinger bands offer you a way to measure the volatility of your coin. When you see the bands become narrower, prices are moving closer together, which is an indicator of low volatility and high stability in general. They are also a great way to find out when you can trade outside normal levels because it allows you to predict the long-term movement of the price.
The On-Balance-Volume indicator is a great way to see how much volume is in the market when the price increases. The day's volume will decrease from the OBV total if the price decreases. This helps show momentum changes which can be a great way to know when to buy or sell.
TradingView is the most common charting website. It's free to use the basic tools and offers easy ways to learn the basics of technical analysis. It allows any trader to get started, even beginners who need help with understanding what is going on in the Bitcoin market.
2. Fear and Greed Index
The Fear and Greed Index is an indicator that you can find on many different websites, but the cryptocurrency tracker seems to be offering it as a separate tool. It provides traders with easy ways to see the current sentiment and emotions within the Bitcoin markets and helps them make better trading decisions based on how they are feeling about prices at any given time.
CryptoWat.ch is a comprehensive chart for trading cryptocurrencies. It offers live trades, market news, and a chat room where you can talk with other traders who are active on the platform. This is one of the most popular tools that people use to keep up-to-date on what is going on in their markets at any given time, which makes it great if you want to stay on top of things.
Coinigy is the most comprehensive tool. It's not free, but it does provide users with a wide range of tools to make better trading decisions and helps you keep your trades synced across multiple devices so that you don't have to worry about missing out on trading opportunities.
How to Start: A Live Example
While we've already provided a ton of information, that doesn't mean it has to be challenging to read cryptocurrency charts. In this section, we'll show step-by-step instructions on how to start reading cryptocurrency charts.
Choose Your Platform
The first thing that you need to do is choose the platform of your choice. We recommend using TradingView because it's free and easy to use, but there are other options out there if you want something more advanced or need various types of tools.
Pick a Date Range
The next thing that you need to do is pick a date range. This can be as short or long as you'd like. The right choice will depend on whether you're choosing to day-trade or if you prefer long-term investments. You can choose 15 minutes, 1 hour, 4 hours, daily, weekly or monthly intervals.
Mark Basic Resistance and Support Levels
Once you've chosen your date range, it's essential to pick out some basic support and resistance levels, so that you can see where the prices have been in the past. This will help give you an idea of what is going on with Bitcoin without having to do a ton of research before making any moves.
Look for Long-Term and Short-Term Trends
The next thing that you need to do is look for long-term and short-term trends. This can give you an idea of what the general prices are within your chosen date range. Still, it's also important to remember that Bitcoins move in cycles, so if there are any major changes happening weekly or monthly, they will be reflected here as well. Think about current events, key announcements, political moves, or other news that could impact the market. Pay attention to the different indicators as we've discussed above to find the right time to trade or buy.
Key Takeaways: Understanding Cryptocurrency Charts
Cryptocurrency charts can be intimidating at first if you don't know what is going on, but they are much easier to read than most think. Once the basics of chart reading have been mastered and you've got a good understanding of how Bitcoin works within its different cycles, it's easy to see why trading cryptocurrencies can be such an exciting opportunity. It allows anyone from new traders who need help with learning more about cryptocurrency charts to even long-time veterans who want something efficient and straightforward to use when looking for opportunities.
Does Technical Analysis work on Bitcoin?
Yes, technical analysis is effective for Bitcoin and other cryptocurrencies. Technical analysts look at a wide range of aspects, including price history, to predict the future movements of specific currencies based on what has happened previously.
How to Predict Cryptocurrency Charts?
Predicting cryptocurrency charts is difficult without using technical analysis. Still, it may be possible to predict by looking at the volume of transactions and general public interest as well as any upcoming vital events such as major announcements.
Should I invest in Bitcoin right now?
That depends on your current financial situation. If you are confident in the market and think it will continue to go up over time, investing now is probably a good option. However, others may want to wait for more information or additional indicators before making any moves at all. Reading the charts is the easiest way to determine if you should invest in Bitcoin right now.
What affects prices the most?
Many different factors contribute to the price of Bitcoin, but new technologies and announcements from companies such as Amazon or Alibaba can have an impact on prices. In addition, other significant events like political decisions may also affect the cryptocurrency charts.
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