How to Read Cryptocurrency Price Charts
To be in tune with the market, you must know what you are dealing with. It’s like dating. Depending on the mate, it may take years before there is thorough understanding. Same applies to cryptocurrency—and any form of trading. Before harmony, the trader must learn to read or decipher what the market is trying to communicate. To engage with the market, the trader must first know who s/he is—I hope this doesn’t sound like a motivational speak—there is an article about this. Aside from that s/he must fully understand different blockchain and crypto related trading jargons. This is necessary because assuming you become a world-renowned trader, you must communicate with others in a language they understand, right? Before then, what’s energy-sapping is “reading” the market. This is an art, not science and before you become a Picasso, it may take years of perfection and sync with the markets. Read here on how you can read Cryptocurrency Price Charts:
Dominating the trading scene are Japanese Candlesticks. They are free but other options as Line, Area, Renko or Volume charts are available. Most are free but some are premium. However, trading is trading and expensive is not necessarily quality. In my many years of trading, I’m deeply sated by what ordinary Japanese candlesticks can communicate. Their structure is simple. Each candle has an open, high, low and close price or OHLC and you can customize their bull or bear bars.
On platforms as Trading View, a bull bar is green while a bear bar is red. The choice is yours, you can flip colors as much as you want but a green candle will always print if the close is higher than the open. On the other hand, a red candle will show if the close is lower than the open. It’s pretty much straight forward.
Reading Price Charts
By successfully reading and understanding candlestick price charts, a trader can make the right decisions and earn money. But there is always a propensity of complicating this reading and I guarantee you, the old adage of simplicity is the ultimate sophistication chimes well with those who may have been entangled with the art of reading price charts. Here’s what you should do when starting out:
Identify Swing High and Lows
As we said, a candlestick communicates OHLC. A trader can quickly judge and know the general trend swing highs and lows in any price chart. Analyze the chart and for trend definition, series of lower lows point to bears while higher highs point to bulls. To gauge momentum, check the depth of corrections—the deeper the retracement, the weaker the trend. After figuring out the trend and strength of momentum, a trend trader can buy or sell on every pullback depending on the trend.
Where are Support and Resistance Levels?
Luckily for traders, the price of any crypto asset can either be ranging or trending. Studies show that 70 percent of the time, prices range and that’s where most traders get burnt. On the other hand, 30 percent of the time, the market will rally. This is where patient traders trading market structures as resistance and support make money.
Support and resistance levels are high probability points where asset prices will either reverse or breakout. Support levels are the point of confluence where prices consolidate without breaking below. They often mark bases of a potential bull trend. The opposite is true for resistance. To avoid bull or bear traps, traders should simply figure out the main trend, swing highs and lows and later confluence liquidation or support zones. Thereafter they can trade on breakouts.
Incorporate Technical Indicators
Indicators are good and some can help you map out support and resistance levels reducing work load. Other than that, I must be honest: indicators are lagging and I’m not a big fan now that price action is dynamic. Within seconds, you may find yourself initiating positions countering the main trend and posting huge losses thanks to indicator advice. Instead of using moving averages or other momentum based indicators, draw details from transaction volumes. After all, trading is all about willing buyers and sellers and what a better way of understanding these real time streams than by incorporating them for free in your trading.
To cap this, this preview may look basic but I reiterate, avoid overcomplicating your trading. Don’t use more than two indicators in a chart—if I were you, I won’t use any and accustomed to a naked chart guided by volumes. Other than that, trading is an art. It will take years to perfect.