Knowing how to read cryptocurrency charts and understanding the data they present is vital in succeeding in the world of crypto trading. Once you’re well equipped with the proper knowledge, you can then interpret data, recognize patterns and make informed decisions so you can reap the fruits of your labour.
Here at BTC Post, we want to help you get started on your crypto activities. With numerous terminologies to learn, jumpstarting your crypto trading career can be overwhelming. Learn everything you need to know before diving into the whole crypto business first.
Types of market analysis
When reading charts, there are certain lenses traders use to narrow the scope of their study. There are two main ‘lenses’ or types of analysis traders use to categorize what they are considering in their data gathering, namely, fundamental and technical analysis.
This kind of analysis considers not only the data presented by the chart but also otherworldly factors such as the public response, economy and laws. The underlying belief under this is that the asset’s price can be affected by worldly events and eventually, these will reflect in the charts.
On the other end of the spectrum is technical analysis. This kind of analysis relies only on the chart and the chart alone. It requires studying the past performances of an asset since these will tell how the market will move in the future.
Types of charts
Charts are used to spot trends, analyze data and speculate what the future price will be. When you go to an exchange site, you can set the type of chart you want to see and customize it to observe specific technical indicators which we’ll get to later. First, let’s delve into the types of chart views normally used by traders and find out what differentiates them from each other.
Considered as the most basic type of chart, line charts only indicate the closing price of an asset for a specific time period which is usually a day. Streamlined and clean-looking, the line chart is used if you only want a quick look at a coin’s price history. It presents an easily digestible chart that indicates the coin’s price at the end of a specific day.
If you need more information such as the coin’s highest and lowest points as well as its opening price, you’ll need to check out another kind of chart like the Japanese candlestick.
The bar chart is the improved version of the line chart. While maintaining the line chart’s minimalistic look, the bar chart plots not only a coin’s closing price but also the opening, highest and lowest prices for a specific time frame.
Contrary to its name, bar charts don’t actually show bars. Instead, it uses sticks with short protruding arms extending to the left and right to indicate the opening and closing prices. The left hand signifies the opening price while the right hand signifies the closing prices.
The top of the stick points to the highest price and the bottom points to the lowest price the coin reached during the day. If you want to get the difference between the highest and lowest prices, you only need to look at how long the stick is. The length of the stick reveals the coin’s range for the day.
If the closing price is higher than the opening price, the stick is coloured green. If the closing price is lower than the opening price, the bar is coloured red.
Japanese candlestick chart
Candlesticks are similar to bars but they are easier on the eyes with expressive visuals that reveal a lot of information. Developed by the Japanese in the 17th century, this chart has been helping traders get the information they need for so long that it even got the name ‘The Trader’s Choice’.
So it doesn’t come as a surprise that the most popular exchange sites today such as Binance and Coinbase use candlesticks as their standard chart. The candlestick chart comes in handy when recognizing trends and patterns in the chart that’s why traders especially prefer this chart.
A candlestick has similar parts to that of a bar but instead of protruding lines on the sides, this one has lines sticking out on the top and bottom parts of the candle. These protruding sticks are called shadows while the thicker stick is the body.
These are the two parts of a candlestick. The body shows the difference between the opening and closing prices while the shadow refers to the lowest and highest prices a coin has reached.
When viewing charts on exchange platforms, you can customize their looks to help you find the data you need. There are numerous technical indicators that you can toggle on and off so your chart looks exactly how you want it to look. Here are some of the most common technical indicators you can see on trading platforms today:
Relative Strength Index
The Relative Strength Index or RSI lets you know if an asset is overbought or oversold. To do this, it considers the magnitude of recent price changes and calculates it through a formula:
RSI = 100-(100(1-RS)) where RS stands for the average days the asset’s price was up or down.
Usually, an RSI is a number between 0 and 100. If the number is below 70, it indicates that the asset is overbought and will soon drop its price. If the number is above 30, it means that the asset is oversold and it’s likely that the price will start rising soon.
Simple Moving Average
If you want to see how the prices have moved in a specific number of days, toggle the Simple Moving Average or SMA indicator on and you’ll find a seamless line cutting across the chart. This represents the average movement of the asset’s price. The SMA calculates the average of previous closing prices by the number of periods in that range.
To let you know how volatile an asset is, you can check the Bollinger Bands which appears together with the SMA. Two lines surround the SMA line to create a band. The thicker the band is, the more volatile an asset’s price is. The thinner it is, the less volatile the price is.
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