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How to read cryptocurrency charts

by | Dec 15, 2017

When you enter an exchange, you are going to find a range of different charts you may not be familiar with. In this article, we will review the basics of reading a chart for price information.

There are many types of charts, and they are usually viewable in different time frames: daily, weekly, monthly, or shorter time intervals like 1 hour, 30 minutes, or 5 minutes. Usually, your crypto exchange will default to candlestick graphs at a 15 or 30 minute time frame. You can manually adjust that to make the candlestick represent smaller or larger intervals, but first here is a beginner’s guide on how to read candlestick charts, focusing on 2 basic components: the candlestick and volume.

This explanation is not intended to teach how to interpret the charts for making buy and sell decisions; it is just to explain what the symbols mean that you see on the charts that appear on practically every exchange where you can trade crypto. In order to become a successful and profitable crypto (day)trader as your main income, it requires an in depth study and practicing of market behavior, chart patterns, indicators, trading strategies, risk management. Do not get fooled by others into believing trading is something that you can learn as quick as within less than 90 days (it is usually a 1+ year learning process!) and get rich quick (sorry, not gonna happen)! The vast majority of people trading (90%) actually lose money; unsophisticated traders are most likely to lose all their money! But of course everyone has got to start somewhere and the best way is to understand the basic meaning of the components. Having a better understanding of charts and market behavior can also be helpful to make better decisions on your longer term investment strategy and your entry and exit points.

How To Read Candlestick Charts

A candlestick represents the prices that a coin traded for in a specific time period. They consist of a vertical rectangle (the wide part of the candle) with two thin lines spiking up and down. The length of each candlestick will tell you the market’s opening, highest, lowest, and closing price during that period. The vertical rectangle is known as the “real body” and encompasses the trading activities between opening and closing prices. For example, if the opening price is higher than the closing price, it will be recorded at the top of the real body and the closing price at the bottom, and you will see a red candlestick. A green candlestick means the price went up in that time frame: the opening price was lower than the closing price.

The vertical lines that stick out from the real body reflect the high and low prices for the time period. They are known as upper and lower shadows, or wicks.

(Candlestick image title: Candlestick chart scheme 03-en.svg, Author+Source: Probe-meteo.com, under the Creative Commons Attribution-Share Alike 3.0 Unported license)

Each candlestick is an indicator and tells you the price action within a given period: each candle will have a different shape based on the specific price action in that period; some have thin bodies, some have large bodies, some have short (or no) wicks and some have long wicks and in all imaginable combinations. Some specific candlestick forms are believed to have significant indicating properties for the price action that is explained by it in the given period. However, we also need to look at a range of candlesticks to understand the broader story of a coin’s price and start to discover patterns. These indicators can provide insight into market sentiment and help investors determine when to enter or exit trades. Check for example this post in our forum where you will find cheat sheets of many common chart patterns and candlestick patterns that might give you an impression of how this can be used. This technique is called Technical Analysis of which more is explained in this article.

Introduction to Chart Analysis: Support, Resistance and Trend lines

Now you know how to understand the meaning of the candlestick symbols in a chart and knowing that certain patterns can create certain expectation of probability in which direction the price may be moving, it is time to understand some basic concepts of chart interpretation. Famous terms that you may hear in price analysis discussions are support, resistance and trend lines. As an introduction to these concepts let’s start imagining that support functions as a floor and resistance as a ceiling in a room. Now imagine a tennis ball as the price that is being thrown up or down: whenever it hits the floor or ceiling, it will bounce off. The same effect do the support and resistance “lines” have for the price of a cryptocurrency (or any traded asset). Usually those support and resistance lines are easily recognizable on a chart. A trend line is a specific form of support or resistance and it shows you the direction of where the price has been going so far; either an up trend (when the price bounces off the trend line in an ascending trend) or a down trend (when the price bounces off the trend line in a descending trend). In this article you can read a more in depth article to expand on these concepts with some accompanying images for better visualization.

How Volume Works

How many coins were exchanged, which is known as trading volume, can offer another view of the price action that you get from candlesticks? It is a rough indicator of the enthusiasm of buyers and sellers in the market. Movement in price with comparatively high volume can mean more reliable signals of the price action. Changes in volume (increasing or decreasing volumes) in combination with other chart patterns also can have specific meaning for upcoming price movements. It is however necessary to understand that crypto markets (and especially those of the lower ranked altcoins) have relatively low trading volumes, which makes it easier for big players (whales) to heavily influence price movement, because less money is needed to make the price move. Also in some cases due to bot trading and specific trading incentive models (no-fee trading or paying traders for making trades) on some exchanges the volumes you see can be a bit distorted from reality.

The volume bars are normally located underneath candlesticks, sharing the same colors: red indicates that the price has decreased in the previous time period, and green indicates that the price has increased in the previous time period. In this article you can learn more about using volume indicators.

If you are new to cryptocurrency or just new to investing in cryptocurrency, you might want to check out our Ten commandments of cryptocurrency investing.

Disclaimer:

This article was written to the best of our knowledge with the information available to us. We do not guarantee that every bit of information is completely accurate or up-to-date. Please use this information as a complement to your own research. Nothing we write in any of our articles is intended as investment advice nor as an endorsement to buy/sell/hold anything. Cryptocurrency investments are inherently risky so you should never invest more than you can afford to lose.

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