Do you want to be better at crypto investment? If so, cryptocurrency price action is one of the key factors to understand. It is nothing but the fluctuation of crypto prices over a period of time. Experts use a line or candlestick chart to represent this movement. This article discusses these charts and how you can learn to analyze them easily.
What are Crypto Charts and How do Analyze them?
You can make smarter investment decisions by learning to spot ongoing crypto price trends and market movements. Crypto charts and graphs are tools that help you do just that.
Crypto charts contain a graphical form of a cryptocurrency’s historical price, time intervals, and trading volumes. By learning these charts, you can spot certain patterns that show the crypto market movement. In this way, you can spot opportunities to make better investments.
There are two main crypto analysis charts—Line Charts and Candlestick Charts. Let’s take a detailed look at these charts and how to analyze them.
A Line Chart is the most basic price chart in crypto. These charts show the crypto price changes over a given timeline using a line. The closing crypto price of the day is used to draft a line chart.
Line charts have 2 scales—Linear and Logarithmic. In the linear scale, you’ll find an equally divided price scale. This scale indicates the speed of cryptocurrency price change.
The logarithmic scale helps you understand the ongoing crypto trend. This scale shows you a crypto price based on percentage changes. Hence, even if 2 price changes are different but have the same percentage change, the log scale displays them using equal vertical shifts.
The volume indicator at the bottom of this chart shows the volume of cryptocurrency traded during a given period. Knowing the trade volume can help speculate where cryptocurrency prices are headed. For instance, if crypto prices rise at a high trading volume, it means many people are trading in crypto.
A Candlestick Chart represents crypto price movements, with details of the close market price and the price change over a fixed period. Each candle depicts the highest and lowest prices. Here’s how you can interpret candlestick charts:
- The green stick stands for upward price movement, and the red stick stands for a price drop.
- The body of the candle represents the difference between the opening and closing price of the given time interval.
- The shadow towards the end depicts the highest or lowest point of the price movement during the same interval.
- A green candle means its closing price is higher than its opening price while a red candle means its closing price is lower than its opening price
Reading Trendlines in Candlestick Charts
A trendline is a straight line sloping upwards or downwards, intersecting at two different price points. A strong trendline should cross multiple points and intersect at least 3 price points to show a possible trend. These help you identify market trends.
Pay attention to the spacing between the points on the trendline. If they are too close, the time frame is too small to spot a genuine trend. Meanwhile, if the points are too far apart, they might not have a relationship.
Finally, you should pay attention to the angle of the trendlines. If the line is too steep, it is unlikely to be a trend. For instance, it is unrealistic for a cryptocurrency to keep dropping 40% daily over a long period.
Observe a trendline, and you may be able to predict where an asset is headed. But, be careful when you speculate because trendlines are just another tool. Also, they are not the final word in crypto price trends.
What to look for in charts
While looking at crypto charts, you need to pay attention to crypto price trends and trading volume.
Crypto Price Trend
Crypto price analysis is the process of finding patterns in the crypto market. It helps traders and analysts to come up with better strategies. Also, it helps understand market sentiments better.
The two main characteristics to look for in the crypto price trends are whether the market is bullish (rising price) or bearish (falling price). Candlestick charts are one of the best ways to analyze market trends and observe price trends on a daily basis.
Crypto Trading Volume
Cryptocurrency trading volume is a good indicator of a market trend—it shows you the change in trading volume over a period. By looking at it, you can say how strong a trend is. For instance, if prices are rising and the volume is high, this shows a strong trend and has more chances of lasting long.
Observing cryptocurrency market trends is an essential skill for every crypto trader. Crypto charts and graphs explained above are crucial tools to help you with that. You can use the above guidelines to figure out the crypto market yourself. Tradingview, Cryptowatch, and Coingecko are some of the platforms which you can check for trading charts. If you want to know more about the potential of cryptocurrency as a source of exchange, check out this article.