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How to read crypto charts as a beginner

Beyond doubt, you need to how to read crypto charts as a beginner to excel at crypto trading and investing. Although crypto charts seem extremely complicated at first glance, once you understand the basic elements, different data types, and patterns, everything becomes much easier. Looking to learn how to read crypto charts as a novice? This article will guide you through the basics. Let’s dive in! 

The-best-crypto-exchange-platform
The-best-crypto-exchange-platform

What are crypto charts?

Crypto charts are simply graphical representations of the historical price, time intervals, and volumes of crypto trends. Essentially, these charts form patterns based on previous price trends of digital currencies and are generally used to find reasonable investment opportunities.

What is technical analysis(TA)? 

Technical Analysis (TA) is the process of converting the patterns in crypto market data into charts that can pinpoint trends and predict price directions. By integrating price, momentum data, and volume, analysts can easily evaluate an asset’s potency. They can also generate trading signals that suggest where the asset is placed relative to the current market.

Charles Dow, an American journalist and the founder of the Wall Street Journal spearheaded Technical Analysis by developing the Dow Jones Industrial Index. The Dow Jones Industrial Index was created in the late 1800s. During this time, Dow creator also recorded the market’s highs and lows trends, from which he drafted patterns and correlations. His investigations ultimately turned into the Dow Theory. The Dow Theory is the majorly led to the rise of the “bull and bear” in financial markets.

How does technical analysis work?

How to read crypto charts as a beginner
How to read crypto charts as a beginner

Technical analysis operates on the grounds that past crypto trading activity and price movements reveal potential paths for forthcoming price movements. This is controlled by the conviction that human psychology steers financial markets and that specific behaviouristic patterns can reoccur under similar conditions.

In the world of crypto trading, people constantly assume that history is likely to repeat itself. Prices are assumed to shift in cycles called “trends” and rotate between bull markets and bear markets. Also, people believe that nothing comes at random and that by analyzing market data, it is possible to recognize short or long-term market trends invisible to the unskilled eye.

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What is the Dow Theory?

At a very high level, Dow Theory illustrates market trends and how they generally behave. It provides signs that we can use to determine the primary market trend. We can then use the current market trend to make wise trading decisions.

We can equally apply the Dow Theory to the cryptocurrency market. According to this theory, the market weighs everything during its pricing. Hence, the current asset prices on the market are generally a reflection of all existing, prior, and forthcoming details of the stock. This implies that a crypto market analyst can concentrate on the price of a token, instead of every single variable that shifts the price of a coin.

Crypto markets shift up and down in precise patterns. Being capable of recognizing the patterns in this market will make it possible for you to predict market behaviour.

What are candlestick charts in cryptocurrency?

What are candlestick charts in cryptocurrency
What are candlestick charts in cryptocurrency

We can examine and analyze unique cryptocurrency market trends in so many ways. Especially If you have access to different crypto charts as a trader. Crypto candlestick charts generally offer more information to traders because of the unique nature of candlesticks.

A candlestick comprises two main bars: the body (the thicker part), which denotes the opening and closing prices of a crypto asset; and the wick (which is the thinner part) which signifies the highest and lowest price points. 

A candlestick serves as the main price indicator in most crypto price charts. Essentially, each candlestick depicts price activity within just one unit in time. On most crypto charts, a green candle signifies a bullish shift or a price increase, however, a red candle depicts a bearish shift or a price decrease.

Understanding candlestick charts

The simple layout of candlesticks can provide users with a lot of important information. Technical analysts can even use candlestick patterns to determine potential trend reversals. However, the major concern is for cryptocurrency traders to be aware of bearish and bullish candlestick patterns.

For instance, a long wick at the top of a candlestick’s body can indicate that traders are taking gains and a crypto sell-off may be happening soon. On the other hand, a long wick at the bottom of the candlestick could indicate traders are purchasing cryptocurrency every time the price drops.

Likewise, a candlestick in which the candle body takes up almost all of the space and has extremely short wicks could mean that there’s a powerful bullish sentiment if the candle is green or a strong bearishl sentiment if the candle is red. However, candlesticks with practically nobody and very long wicks indicate that neither the buyers nor sellers are in control.

Werey of trading? Read this – How to earn crypto rewards via crypto staking

What are support and resistance?

Having a basic understanding of support and resistance is another crucial part of reading and understanding a crypto chart. Essentially, support levels in charts simply refer to a price level that the coin does not plunge below for a specific period. On the other hand, resistance level means the price at which we do not expect the coin to increase any higher. This is simply the level at which the sellers are more than buyers in the crypto market. Experts generally suggest support and resistance levels to help traders while assuming positions in crypto.

What are moving averages in crypto charts?

What are moving averages in crypto charts
What are moving averages in crypto charts

Another crucial line you will probably meet when trying to understand and analyse crypto charts is the moving average indicators. Basically, the system draws these lines based on the average closing price of a token over a specific period of time. Moving averages are useful for checking patterns and assisting traders to determine trends and the different signals for both entering and exiting positions.

How do you read crypto charts accurately?

In a bullish-like candlestick, the closing price is usually higher than the opening price placed on the asset. As for the bearish candlestick, it will be illustrated in red. Generally,  a bearish candlestick will have the opening price higher than the closing price placed on the asset. If read accurately, candlesticks can plainly show you where the crypto market turned.

Why is reading cryptocurrency charts essential for crypto traders?

Reading cryptocurrency charts is essential for traders to be able to figure out the best prospects in the market. Technical analysis can help crypto investors determine market trends and foretell the future price movements of a coin.

It is important for a crypto trader to learn how to read crypto charts as a beginner for informed decisions. Reading crypto charts effectively boils down to choosing the right time frame and understanding whether an asset moves up or down. So once you understand the basic concept of candlesticks and time frames, you should be able to read crypto charts. After this, you can now open a chart for any token trading pair, and identify the different trends and patterns. 

As the best crypto exchange app in Africa, Bitmama offers a secure marketplace for crypto enthusiasts. Perform activities like crypto exchange, crypto staking, and creating virtual dollar or crypto cards for online payment. Get started today by downloading the Bitmama app.

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Emmanuel

Aug 28, 2023

6 mins read

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