Understanding Crypto Charts

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Understanding Crypto Charts : The ability to read a crypto chart is essential for both novice and seasoned traders in the cryptocurrency market. By displaying relevant data in a visual format, crypto charts aid those dealing with cryptocurrencies in making informed investment and trade decisions. They function in a similar fashion to other types of technical charts used by investors to select stocks. Crypto charts, for the uninitiated, are visual representations of the crypto market’s price, volume, and time intervals. And yet, are you an expert crypto chart reader? Then, let’s begin with the fundamentals.

Dow Theory: The Foundation of Technical Analysis

Before learning to read a cryptocurrency chart, all traders should have a firm grasp of the Dow theory. Technical analysis was developed by Charles Dow, an early innovator. He was an early investor in Dow Jones & Co. In addition to establishing the Wall Street Journal, he also served as its first editor. It was in a string of editorials for the Wall Street Journal that Dow fleshed out his ideas. After his passing, other editors like William Hamilton took his editorials and further developed his ideas into what is now known as the Dow theory. Technical analysis using the Dow theory can be thought of as a framework. In it, we find a list of six cornerstone principles. Investors looking to spot and ride the next crypto trend can use Dow Theory as a foundation.

1. The market reflects everything

The efficient market hypothesis is the foundation of the Dow theory (EMH). According to this theory, asset prices on cryptocurrency and stock exchanges accurately reflect their true market value. Therefore, the opposite of behavioral economics applies to this approach. Consider how the market would react if it knew that a company’s earnings were about to improve before they actually did. Shares of the company will be in higher demand just before the release of the update report. Furthermore, the market value of the company may not shift significantly even after the release of the report that everyone expects to be positive.

2. There are three market trends 

The three possible directions of market movement were first proposed by this theory.

  1. Primary Trend: Primary trends can be either uptrends or downtrends, and they can last anywhere from a few months to several years. That’s the biggest shift in the market today. Bull markets, in which asset prices rise over time, and bear markets, in which asset prices fall over time, are the two most common primary trends.
  1. One interpretation of a secondary trend is that it is a reversal of the primary trend. These tendencies may counteract the overall pattern. Even in bull markets, secondary trends can cause setbacks. When this occurs, asset prices tend to drop temporarily. Bear markets can experience rallies as secondary trends. Price increases in such situations are usually short-lived before the downward trend resumes. These tendencies can be short-lived, or they may persist for several months.
  1. Ten days or less is about the average lifespan of a tertiary trend. Many investors just brush them off as meaningless market noise. Minor, or tertiary, trends are the day-to-day fluctuations in market activity. Market chatter may be reflected in tertiary trends, according to some analysts.

Prospects for profit can be found by investors by monitoring these shifting tides. If you look at a crypto’s chart, you might find one with a bullish primary trend but a bearish secondary trend. If the price of the cryptocurrency drops, you might be able to make a profit by selling it at a higher price.

3. Trends have three phases

The Dow Theory states that for every major trend, there are three distinct phases:

  1. In a bull (or bear) market, the primary upward (or downward) trend begins with the accumulation phase. Traders who are astute enough to spot the start of a new trend can then prepare for it by stocking up before an upward movement or selling off ahead of a downward movement.
  1. Phase of Public Involvement: Now the market as a whole sees the opportunity that savvy investors have seen. Consumer activity increases as a result of this. In either case, this influences the direction of price changes in the market.
  1. Excessive buying by investors is a hallmark of the panic phase. Investors start selling off their holdings in an effort to reduce risk. This means they unload their positions onto market participants who aren’t yet aware of the impending trend reversal.

4. Indices must confirm each other

According to Dow Theory, if one market index is showing a trend, that trend should be confirmed by another market index. If one index confirms a new primary upward trend while another remains in a primary downward trend, traders should not assume a new primary upward trend is beginning, according to the theory. If India is experiencing a bullish trend, for instance, all of the aforementioned indices—the Nifty, the Sensex, the Nifty Midcap, the Nifty Smallcap, and so on—should go up, verifying the trend seen in each other. Similar to how all indices must be heading down for a bearish trend to be in effect.

5. Trends are confirmed by volume

Volume should rise when prices follow the dominant trend. When moving counter to it, on the other hand, the volume should drop. Generally speaking, the greater the volume, the more accurately it reflects the underlying market trend. Prices may not be reflective of the underlying market trend during periods of low trading volume. As an example, in an upward trend, volume increases as prices rise and decreases as prices fall. When prices are falling, volume is rising, and when prices are rising, volume is falling in a downward trend.

6. Trends will persist until definitive signals indicate otherwise

If the market were trending, in Dow’s view, it would continue to trend. If the price of a cryptocurrency rises in response to positive news, for instance, it will keep going up until a clear reversal occurs. It’s easy to confuse primary trend reversals with secondary ones. Therefore, according to Dow’s advice, it’s best to be wary of sudden shifts in the trend.

How to Read Crypto Charts (Understanding Crypto Charts)?

The candlestick is the standard price indicator in crypto price charts. There is a lot of information that can be conveyed by candlestick charts. They are an easy way to see how prices are moving over time. In the real world, charts for the cryptocurrency market can show data over a variety of time intervals. Here, the various intervals are depicted by candlesticks. Let’s say, as an illustration, a four-hour timeframe is selected on a chart for crypto trading. Each candlestick in that graph represents four hours of trading. Each trader’s approach and preferred trading timeframe are unique.

 

 

How to Read Crypto Charts (Understanding Crypto Charts)

 

Two primary bars make up a candlestick:

  1. The “Body” refers to the bulkier middle section. Opening and closing prices for the asset are displayed.
  1. The term “wick” is used to describe the thinner section. Extreme high and low prices are displayed.

A green candle on most cryptocurrency charts represents a bullish trend or an upward price movement. Conversely, a red candle represents a bearish trend or a price drop. In contrast, a candlestick with a thin body and a long wick suggests that neither buyers nor sellers are in charge at the moment. The patterns formed by these candlesticks, as well as their size, shape, duration, and color, can give traders a glimpse into the direction prices will move in the near future. Analysts, buyers, and traders can make decisions based on the likelihood of outcomes with the help of these tools.

How to Read a Cryptocurrency Chart: The Basics (Understanding Crypto Charts)

When dealing with cryptocurrencies, investors can use charts in the same way that technical analysis is used to help choose stocks and commodities.
The crypto market’s price, trading volume, and other metrics can all be visualized in the form of charts. The charts can be used to identify potential investment opportunities by analyzing the historical price movements of the digital currency. Let’s talk about a Japanese Candlestick chart to learn how to read a cryptocurrency chart.
Among the many types of charts used in the cryptocurrency market, the Japanese Candlestick is popular. In order to make sense of the preceding picture, you should know that a red candle indicates a period of time in which the closing price was lower than the starting price. This indicates that the asset’s value decreased. However, the green candle indicates that the final price was higher than the opening price. Thus, the value of the asset increased. These candlestick charts form several patterns. As a result of the candlestick’s size, color, and shape, traders may decide to enter or exit a trade.

Indicators

Numerous technical indicators exist to aid the crypto trader in interpreting the chart. I’d like to talk about two widely used technical indicators:

Moving Averages

For the MA line, we take an average of the closing prices on each day over some time frame. The line travels across the graph of current prices. Cryptocurrency traders can use moving averages to generate trading signals in real time. MA typically ignores short-term price fluctuations.

Support and Resistance Level

When deciphering cryptocurrency charts, the levels of support and resistance are of paramount importance. When an asset, like cryptocurrency, experiences a price drop, buyers tend to congregate at certain price points called “support levels.” In contrast, resistance levels are those prices where buyers and sellers are evenly split. Support and resistance levels are used by traders as landmarks to make purchases and sells, respectively.

Patterns 

In addition to technical indicators, traders can also use patterns on cryptocurrency charts to predict future price movements. Check out these 3 common crypto patterns:

Hammer Candle Pattern

 

How to Read Crypto Charts (Understanding Crypto Charts)

 

 

The ‘Bullish Hammer’ is a pattern that often signals a reversal. Most frequently, they materialize after a price drop at the low point of a declining trend. It’s also a sign that demand is rising rapidly. The hammer’s handle is symbolized by the long wick at the candle’s base. The candle’s entire cylinder shape stands in for the hammer’s head.

Head and Shoulders (Understanding Crypto Charts)

 

 

 

Head and shoulders patterns are trend reversal patterns. They can show up at the peak or trough of a trend. It’s possible that the crypto price is about to rise, as indicated by a bullish ‘head and shoulders’ pattern. Meanwhile, a ‘head and shoulders’ pattern is bearish and can signal a price drop. There is undeniable evidence of a struggle between buyers and sellers in these patterns.

Wedges (Understanding Crypto Charts)

Wedges are an illustration of a fad that is beginning to fizzle out. To create a ‘wedge’ in a crypto chart, simply draw a line from the lowest point in the price movement to the highest point in the price movement. A wedge is formed by bringing these two lines together at an angle, going from left to right. The formation of a bullish wedge could foretell a favorable trend change for the asset. In the meantime, a bearish wedge may signal the top of the cryptocurrency market and the beginning of a price decline.

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