Cryptocurrency charts are important documents that help users decide on the credibility of a particular cryptocurrency. The crypto chart contains vital information that helps you decide whether a particular token is profitable to buy or is better if it is sold.
The knowledge and skill to read and understand a crypto chart is a key skill that you should possess for conducting effective trade in the market.
This article is a comprehensive guide to every aspect of a crypto chart. After reading this article, you will be able to comprehend the market conditions associated with a particular token so that you can devise methods of trading with guaranteed profit.
What is a Crypto Chart?
Crypto charts are visual data representation tools on which the relevant data regarding the market movements of a cryptocurrency are plotted. You can get data about the patterns in market movements, identify trends, and picture the overall momentum of the market.
Crypto charts are important for the technical analysis of the market of a cryptocurrency, whether the token is showing bullish or bearish trends. You can also predict when the market will flourish or dwindle and when you should buy, sell, or hold the tokens.
Reading a crypto chart and identifying the underlying pattern is not an easy task. It requires a lot of practice and time to master this skill of analyzing a crypto chart. However, it is not impossible. Crypto charts can be used to make the best trading decisions.
Also Read: ATH And ATL In Crypto: What They Mean And Why They Matter
Types of Crypto Charts
If you have visited other platforms, you might have noticed that you can view the charts as either line charts, bar charts, or those with a candlestick pattern.
The different types of crypto charts and their unique features are discussed here.
Line Charts
Line charts are the basic way of data representation in a crypto chart. They concentrate only on the closing price of the cryptocurrency at different time intervals. It is possible to get a general idea about the market trends through a line graph. However, they lack the data required for a detailed analysis.
Bar Charts (Open High Low Close Charts)
Crypto bar charts provide a much more detailed analysis of the concerned cryptocurrency by plotting the open, high, low, and close price details. The top of the bar in a crypto bar chart indicates the highest price, while the bottom shows the lowest price of cryptocurrency in the given period.
A small horizontal line on the left of the bar represents the opening price of the cryptocurrency, and a small line on the right represents its closing price.
CandleStick Charts
Candlestick charts are a more sophisticated method of data representation plotted using the open, high, low, and close prices, but unlike usual bar charts, candlestick charts are more visual. These charts portray the data at different intervals such as minute-wise, daily, weekly, or monthly charts.
Body and shadows (wicks) are the important parts of a candlestick chart. The body indicates the difference between the opening and closing price of a crypto coin, the top wick shows a cryptocurrency’s highest price and the bottom wick shows its lowest price. Bullish candlesticks are depicted in green color and bearish candlesticks are depicted in red.
Types of Data Represented on a Crypto Chart
Here are the various data that are usually represented on a crypto chart. Before you ultimately assess the profitability of a particular cryptocurrency you should check the crypto charts for all the parameters mentioned here.
- Price: The price of a cryptocurrency is the first entity that you should consider for checking its performance. You can use the crypto chart to understand the price of a token at a given time and compare price movements over the past days, weeks, months, years, or all times.
- Market Capitalization: The market capitalization of an asset over the past few days, weeks, and years can be identified and compared using a crypto chart.
- Hash rate: Hash rate is the rate at which a cryptocurrency is mined. It measures the number of calculations that can be completed in a second. It is measured in units of hash/second. A higher hash rate indicates higher mining activity and hence represents the overall security of the transactions.
Trends Shown on a Crypto Chart
Upward trends, downward trends, and the consolidated trends of a cryptocurrency can be identified using a crypto chart.
Upward Trends
Uptrends of a crypto token represent a time when the prices reach higher highs and higher lows. This is plotted on a chart as an uptrend line under price and it links the lows. You can also identify an uptrend using the moving average instead of drawing trend lines.
Downward Trends
Contrary to the upward trends, downtrends are identified when the price reaches a series of lower lows and lower highs. The downward trend is plotted as a line drawn above the price linking the price highs. Downward trends can also be depicted using moving averages.
Consolidation Trends
These trends occur when the price of a cryptocurrency in the market is plotted as moving sideways. Consolidation trends signify a dull market without any significant price movements.
Support and Resistance Levels in a Crypto Chart
Supply and resistance levels are important data on a crypto chart. At times when the coin is trending downward, the price will stop falling beyond a level when the level of demand rises to match the supply of a cryptocurrency. This is called the support level.
On the other hand, resistance levels are found in an upward trend where the supply of a cryptocurrency aligns with the level of demand. It should be noted that on a crypto chart, the price of a particular token does not fall beyond the support level or rise beyond the demand level.
Cryptocurrency Chart Overlays and Indicators
Cryptocurrency chart indicators and overlays represent additional information on the crypto chart. Overlays are depicted directly on the crypto chart whereas indicators are represented on a separate chart as additional information to supplement the chart.
Popular Overlays
Here are the details about the popular overlays used to clarify the data represented on a crypto chart.
Moving Averages
Moving averages stress the points where the price will stagnate or start going down. The two moving averages used on a crypto chart are simple moving averages (SMA) and exponential moving averages (EMA). They also help you determine the support and resistance levels of a cryptocurrency.
Bollinger Bands
This overlay depicts the volatility of a token by representing it based on the standard deviation from a middle line. Bollinger bands have upper and lower bands that show the token’s volatility levels. It is an effective tool to help you identify the point at which the price of a token will reverse in trend.
Fibonacci Retracement
In Fibonacci retracement, horizontal lines represent a coin’s support and resistance levels at all major Fibonacci ratios such as 23.6%, 38.2%, 50%, 61.8%, and 100%. This tool also informs traders about the possibility of price reversals and support and resistance levels of a particular token.
Popular Indicators
Here are the most popular indicators that you can find on a cryptocurrency chart.
Relative Strength Index (RSI)
Relative strength index (RSI) is used to identify the speed of price movements. The indicator is set to fall within any value from 0 to 100. 30 and 70 are considered the standard points of consideration. A value below 30 indicates that the market is oversold, and a value above 70 indicates that the market is overbought.
Moving Average Convergence Divergence (MACD)
Moving average convergence divergence (MACD) is a major indicator of the general trend of the market and the possible price reversal movements.
It has three components: the MACD line, which is the difference between the 12-day EMA and the 26-day EMA; the signal line, which is the 9-day EMA of the MACD line); the histogram that shows the difference between the MACD line and the signal line.
Stochastic Oscillator
The stochastic oscillator is a tool for determining the price momentum by comparing a particular closing price to a range of prices over a certain period.
Like the RSI, the stochastic oscillator is also plotted on a scale ranging from 0 to 100. Readings above 80 on a stochastic oscillator show overbought tokens whereas readings below 20 show oversold conditions.
On-Balance Volume (OBV)
The on-balance volume (OBV) measures buying and selling pressure using volume. The OBV rises when the volume on up days outpaces the volume on down days and vice versa.
Identifying Patterns Using Crypto Charts
There are certain important patterns that you can identify from a crypto chart. These patterns help traders identify the general trend of a cryptocurrency and help them anticipate the price movements.
Head-and-Shoulders Pattern
The head-and-shoulders pattern is used to indicate any major changes in the trend of a token. It has three peak points, a head, and two shoulders. This pattern mostly represents a sudden reversal to a bearish trend after a bullish run.
Double Tops and Bottoms
These patterns also represent a reversal of trends. Double tops represent a reversal of the bearish trends. In double tops, the price of a token rises to a peak, retraces, rises again to a similar peak, and then declines.
On the other hand, a double bottom signals a bullish reversal where the price falls to a trough, rebounds, falls again to a similar trough, and then rises.
Triangles
Another significant pattern in the crypto chart is triangles. Three main types of triangles are seen on a crypto chart ascending, descending, and symmetrical. Ascending triangles have a horizontal resistance line and an upward-sloping support line. It represents a bullish trend for the currency under consideration.
Descending triangles have a horizontal support line and a downward-sloping resistance line that shows bullish trends. Symmetrical triangles have converging support and resistance lines. It represents a continuation of the present trends.
Read More: Blockchain’s Role In Securing B2B Payments With Cryptocurrency
Dow Theory and the Mechanics of Reading Crypto Charts
The main use of the crypto charts is to aid in the technical analysis of a cryptocurrency. The theory and practice of technical analysis was established by Charles Dow (1851–1902). Dow theory defines the ways of identifying market trends. The theory analyzes the market trends based on six major principles.
The price of assets incorporates all the information
All information about the performance of a token in the market such as the profit potential and competitive edge are incorporated in the assets’ prices.
Primary and secondary market trends
The bull and bear markets are the primary trends in the crypto market. The secondary trends in a crypto market include corrections in bull markets and rallies in bear markets.
The primary trends have three phases
The primary trends undergo three major phases for the bullish and bearish markets. For the bull market, the three phases are accumulation, public participation, and excess stages. The three phases of a bear market are distribution, public participation, and panic stages.
Market indices must correlate with each other
Signals from one market index must correlate to signals from another for a new market trend to be confirmed. If one market index is signaling a new primary downtrend and another is signaling a primary uptrend, then we cannot conclude the beginning of a market trend.
If both indices signal an upward or downward trend, traders can confirm that a new market trend has begun.
Market trends should correlate with corresponding volumes
In a bull market, market volume should increase and in a bear market, market volume should decrease over time.
The trend persists until a clear reversal occurs
Market trends should persist continuously until a definite reversal occurs. This occurs regardless of the price fluctuations in the market.
Thus Dow’s theory dictates the various tenets of identifying the patterns and reading a crypto chart.
The Bottom Line
You can access cryptocurrency charts on any public crypto platform. Reading a crypto chart is an essential skill that every trader should possess to make the most profit in a cryptocurrency market. You can refer to this comprehensive guide for any doubts regarding a crypto chart. Happy trading!
