How to read cryptocurrency charts: theory for beginners
Why reading cryptocurrency charts is so important for traders
Reading cryptocurrency charts is very important for traders to find the best opportunities in the market, as technical analysis can help investors identify market trends and predict future price movements of the asset.
Technical analysis refers to the analysis of statistical trends collected over time to understand how the supply and demand of a particular asset affects its future price changes. Reading cryptocurrency market charts can help investors make informed decisions based on when they expect bullish and bearish moves to end.
A bullish move is an upward move in price driven by bulls who are buyers of an asset. A bearish move is a downward move in price that is stepped on by bears who are sellers of an asset. Technical analysis can help traders evaluate price trends and chart patterns to find trading opportunities. The best crypto charts help you track market movements, but they come with some caveats.
What is candlestick chart
Candle outlines began in Japan, over 100 years before the advancement of bar graphs and spasm tac-toe in the West. During the 1700s, a Japanese named Homma found that while there was a connection among cost and the market interest of rice, the market was unequivocally impacted by the feeling of brokers. 1
Candles show this feeling by outwardly addressing the size of the value development in various shadings. Merchants use candles to settle on exchanging choices in view of routinely happening designs that assist with anticipating transient value heading.
A bullish immersing design in the market happens when purchasers beat dealers. On the outline, this is addressed by a long green element encompassed by a little red element. As the bulls have set up some control, the cost is probably going to rise.
A bearish engulfing pattern creates in an upturn when there are a bigger number of dealers than purchasers. This activity is reflected in a long red substance engrossing a little green element. The example recommends that dealers have recaptured control of the circumstance and costs might keep on falling.
Support and resistance levels
- A help level is a value level where there are an adequate number of purchasers to prevent the cost from falling further and push the cost higher.
- An opposition level is a value level where there are sufficient venders to prevent costs from rising further and push costs down.
- Backing and obstruction levels can be effortlessly recognized by putting even lines on the graph where the cost more than once stops.
- Assuming your methodology is steady, you can utilize a wick or candle body to draw backing and opposition.
- Backing can become obstruction, and opposition can become help.
- Be careful with bogus breakouts, where costs seem to get through help or obstruction, however switch the other way.
What is moving average?
In statistics, a moving average is a calculation used to analyze data points by creating a series of averages of different subsets of the complete data set. In finance, the moving average (MA) is a stock indicator commonly used in technical analysis. The reason for calculating a stock moving average is to help smooth price data by creating an average price that is constantly updated.
By calculating moving averages, the impact of random short-term fluctuations on stock prices is mitigated over a certain period of time.
Calculating simple moving average (SMA)
The simplest form of a moving average, called a simple moving average (SMA), is calculated by taking the arithmetic mean of a given set of values over a given time period. In other words, add together a set of numbers (or prices of financial instruments) and divide by the number of prices in the set. The formula for calculating the simple moving average of a security is as follows:
Additional indicators and their influence on the chart
OBV (one-volume indicator balance)
On-balance volume (OBV) is a technical trading momentum indicator that uses volume to predict changes in stock prices. Joseph Granville first developed OBV in his 1963 book “Granville’s New Key to Stock Market Profits”.
Granville believes that volume is the key force behind the market and developed the OBV to predict major market movements based on changes in volume. In his book, he describes the forecast produced by OBV as “a tightly wound spring.” He believes that when trading volume increases dramatically without significant changes in stock prices, prices will eventually rise or fall.
MACD (Moving average convergence divergence)
Moving Average Convergence-Divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of a security’s price. MACD is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA.
The result of this calculation is the MACD line. The 9-day MACD EMA is then drawn above the MACD line, called the “signal line”, which can act as a trigger for buy and sell signals. A trader can buy a security when the MACD crosses the signal line and sell or sell when the MACD crosses the signal line. The Moving Average Convergence-Divergence (MACD) indicator can be interpreted in a number of ways, but the most common methods are crossovers, divergences, and rapid rises/falls.
RSI (Relative Strength Index)
The Relative Strength Index (RSI) is a force marker utilized in specialized investigation to quantify the greatness of ongoing value changes to survey whether a stock or other resource cost is overbought or oversold. The RSI is shown as an oscillator (a line chart moving between two limits) with a perusing scope of 0 to 100. This pointer was initially evolved by J. Wells Wilder, Jr. furthermore presented in his original 1978 book, New Concepts. in specialized exchanging frameworks.
The customary translation and utilization of the RSI is that a perusing of 70 or higher shows that a security is becoming overbought or overrated and might be prepared for a pattern inversion or remedial value pullback. A RSI worth of 30 or underneath shows an oversold or underestimated condition.
Bollinger Bands are a type of price envelope designed by John Bollinger. Open in new window. (A price envelope defines the upper and lower bounds of the price range.) Bollinger Bands are envelopes drawn by standard deviation above and below the simple moving average price. Since the distance between the bands is based on the standard deviation, they are adjusted for fluctuations in the underlying price movement.
Bollinger Bands use 2 parameters: period and standard deviation, standard deviation. The default value for the period is 20 and the standard deviation is 2, although you can customize the combination.
Bollinger Bands help determine whether relative prices are high or low. They are used in pairs, including upper and lower bands, and in combination with moving averages. Also, a pair of straps are not designed to be used alone. Use a pair to confirm signals given by other indicators.