Are you an aspiring crypto trader? If so, the first thing you need to know is how to read crypto trading charts. These charts indicate the price movements on a daily and minute-by-minute basis. They help crypto traders make smarter and better decisions in crypto trading. Crypto Trading charts are similar to technical charts in the stock market. Let’s dive right in and find out all about reading crypto day trading charts.
What is a crypto chart?
Crypto charts are graphical representations of volume, price, and time intervals for cryptocurrencies, updated according to the price movements in the crypto market. Understanding crypto charts is a big step toward becoming a great crypto trader. Hence, if you aspire to earn from crypto day trading, it is vital that you learn the skill of reading and deciphering the patterns and trends from crypto charts.
First, let’s check out the common market trends to better understand the crypto day trading charts.
Common market trends
The market moves in three major directions:
1. Primary Trend
Primary trends may last between months to years and are the most important type of market movement. Examples include bull markets or bear markets where prices rise and fall respectively.
2. Secondary Trend
Secondary trends are corrections above the primary trends and may oppose the primary trend’s direction. For instance, it could be a period of market downfall amidst a bull market or prices may fall temporarily. Secondary trends also show up as sudden surges in bear markets. The average duration of these trends lies between weeks to months.
3. Tertiary trend
These trends are short-term trends that die out in less than a week. However, these trends are usually canceled out as noise. Tertiary trends also come in the form of daily fluctuation in the market.
Investors can find opportunities for trading by understanding these trends via cryptocurrency chart analysis. For instance, using crypto market graphs, you can understand that a cryptocurrency may have a negative primary trend but a positive secondary trend. In that case, you can sell your crypto at a high price and buy it when the price drops.
What are candlesticks?
Candlesticks are the main indicators of market price in crypto charts. It is a direct representation of market price action. Also, you can use candlesticks to represent different time frames. For instance, candlesticks can represent a one-day time frame as well as the 4-hour frame.
Candlesticks are made of two bars:
- The thick part is termed as body and it represents the starting and closing prices of the cryptocurrency in consideration.
- The thin part is called the wick and represents the highest and lowest prices during the time frame
Further, a green candle shows that prices increase over the time frame—in other words, a bullish pattern. However, a red candle represents a drop in price or bearish movement. Candlesticks with almost nobody and elongated wicks indicate that buyers and sellers are not in control.
The shape, duration, size, and patterns of candlesticks indicate the possible future movement of crypto. Traders can learn crypto trading more effectively using this knowledge and prepare themselves for better positions.
Patterns and Indicators to read on crypto charts
Indicators are parameters that help traders to break down a crypto chart. Two of the most common technical indicators are moving averages and support/resistance levels. Let’s take a closer look at these:
Moving averages are obtained by calculating the average daily price during a certain period. It is a line that moves across the price chart and in live crypto charts, these can be observed to get useful signals. Moving averages don’t usually consider short-term price changes.
Support level and resistance level
Observing support and resistance is vital to understand crypto charts. When the price falls the support level is where prices are expected to stop because of the high buyer interest at that level. Meanwhile, when prices rise, they are expected to stop rising at the resistance level because of high selling interest. Traders use the support level to buy and the resistance level to sell.
What are the major patterns to observe in crypto charts?
Possible price movement can be understood from patterns on the crypto charts. Here are the three most important patterns to help you read crypto charts better:
A Hammer pattern is usually a representation of a reversal in prices. They show up after prices decline toward the bottom of a downward trend. Further, it shows that buyers are increasing in the market. The hammer’s handle is the long wick whereas the hammer’s head is the entire body of the candle.
Head and Shoulder
Head and shoulder patterns resemble the head and shoulder of a person and indicate a market reversal. Note that they can form either at the bottom or top of a trend. A bullish head and shoulder show that the market may rise soon and a bearish head and shoulder show it could fall. This pattern indicates that there is a conflict between sellers and buyers.
Wedges indicate a loss of interest among traders. Wedge patterns are formed by intersecting a line that touches the lower points of prices and another line connecting the peaks. A bullish wedge shows that the cryptocurrency is about to rise and a bearish wedge represents a potential fall after the peak.
Use the above crypto day trading techniques to read crypto trading graphs and make your trading more productive than ever. The more you understand and practice determining these trends, the better you get at predicting the next action in crypto charts. Gradually you can get better at trading.