cryptocurrency world can seem very overwhelming with the amount of data and charts that is left to analyze on your own. We believe that one of the ways to protect your funds from disappearing from your wallet is to understand the basics of cryptocurrency trading. To do that, one must profoundly learn to use one of the basic tools of the cryptocurrency spheres i.e, Cryptocurrency trading charts.
Traders that use cryptocurrency trading charts are labelled as Technical Traders or Technical Analyst, who prefer to follow the accuracy of charting tools and indicators to identify peaking trends and price points as to when to enter and exit the markets. Often times, cryptocurrency trading can sometimes be confusing, and there are many things to consider when participating within the exchange environment.Here is all what we need to learn about cryptocurrency trading charts.
Cryptocurrency Trading Charts
A line chart is one of the most basic cryptocurrency trading charts you will come across and it looks a lot like you may remember from high school math! These cryptocurrency trading charts show the simple progression in terms of price/marketcap/volume etc of a coin over time represented by a line.
Many times you will see line charts with multiple different lines tracking different aspects like price and market share. These linear graphs give you a good general idea of what the coin has done in price over time. There is no visual information or trading range, meaning no highs and lows and nothing on opening prices. In the example below we look at a simple line graph from one of the most popular tracking sites CoinMarketcap.com.
To get a better insight of a cryptocurrency’s performance, look at the cryptocurrency’s progress over the last 12 months before zooming in to see how it has performed in the last three and six. You need to get a good indication of whether it is on an upward or downward trajectory, whether it is stable or volatile, and how it is performing in the short-term.
The most widespread type of cryptocurrency trading among traders is the candlestick price chart, as seen below:
The candlestick chart is one of the more advanced cryptocurrency trading charts and is what you will see on most exchange sites out there like Coinbase, CEX.io, & Binance. It shows things like price, market cap, and volume with the zoom feature as well, but it also shows a lot more detail about the trading in any given period.
The colors of the candle body do vary from broker to broker, where they could either be green or blue, illustrating a price increase or red being a decrease in price, or hollow candlesticks is where the close price is higher than the open price which will indicate to traders to BUY. Filled / colored candlesticks where the close price is less than the open will indicate a SELL position.
Candlestick price charts contain a lot of useful information for the skilled trader’s eyes, such as whether a candle’s spread is wide or narrow (illustrates the difference between high and low prices), where the closing price is relative to the high and low etc.
Trend lines are lines drawn at an angle above or below the price. They are used to give indications as to the immediate trend and indicate when a trend has changed. They can also be used as “Support” and “Resistance” and provide opportunities to open and close positions.
Support and Resistance Levels
Another important measurement within those market cycles and waves are levels of Resistance and Support. You should look for levels within the chart, where former price resistance turns into a support level.
- Support: being a price which traders will be buying at to stop a price dropping too low
- Resistance: a price where traders refuse to buy more which stops the price going higher
To make you understand better, Support price levels are those level at which the price of the cryptocurrency is assumed to be supported and won’t fall below it. Resistance, on the other hand is opposite to Support, where in the price levels are assumed to not move above Resistance level.
For example, if the current market price of a coin is $40 and it’s support is $35 and resistance os $45, it is assumed that price of the coin will trade in between $35-$45 and won’t go either below or above it respectively.
When you analyze cryptocurrency trading charts like this one, on different time frames, you’ll see how resistance and support levels play together. You’ll often find the waves of smaller time frames playing perfectly within the levels of higher time frames.
There are lots of different ways that someone can identify these levels and apply them to cryptocurrency trading. Support and resistance levels can be important turning points, areas of congestion, or round numbers that a trader attaches some significance to. The higher the timeframe is, the more relevant the applicable level becomes.
Volume is a measure of how much of a given financial asset has been traded in a given period of time. It is a very powerful tool but is often overlooked because it is such a simple indicator. Volume information can be found just about anywhere, but few traders or investors know how to use this information to increase their profits and minimize risk.
For example, Bitcoin, trading on a cryptocurrency exchange, the volume is reported equal to the the number of coins that have changed hands during that particular period of time.
To calculate the average volume of a coin over a longer period of time, you have to take the total amount that was traded during that period and then divide by the length of the period. The resulting number will be a unit of measurement that will represent the average trading volume per unit of time, typically each trading day.
Bull or Bear?
Traders when referring to cryptocurrency trading charts often refer to market conditions as “Bull” or “Bear” markets and sometimes use the phrases “Bullish” or “Bearish”.
A bear market is when price value drops into a downward trend with increased selling and short positions. A bull market condition references increased buying, a price rise, and traders placing long bets.
Many people considers cryptocurrency trading as gambling simply because they don’t know why the price moves and the reason behind the price movement. They are unable to identify the reasons as why the price is moving in any direction. But, if cryptocurrency trading charts are followed and other Technical Analysis tools and strategies are adopted, a crypto trader can make gains and avoid losses. The above mentioned were just the basic cryptocurrency trading tools that every new crypto trader should know about. More analysis tools and strategies will be mentioned soon. Join our Telegram Channel and never get missed out.
Rohit Kukreja is a Commerce graduate with Financial Markets expertise involving Stocks, Forex, Futures & Options Market and now Bitcoins & Cryptocurrency Markets. Blockchain Enthusiast but not a techie, Rohit is an active member of various Blockchain & Crypto communities all over India.