If you’ve been reading up on your finance news lately, surely you have heard or read about cryptocurrency. It’s a highly volatile yet increasingly valuable asset that nearly 7 million people have ownership of. While some see it as a replacement for gold as a store of value, others view it as a potential investment that they may be able to cash into by entering and exiting the market at the right time. Several financial companies have liquidated their holdings so that they can buy large blocks of cryptocurrencies like Bitcoin, Ethereum, Tether, etc. If you want start invest in crypto, you should know how to read crypto charts.
There has been a huge amount of controversy regarding the signature volatility of cryptocurrency which remains at 3.5%, higher than any commodity traded before. However, it’s not just the large players that are buying into the market. A plethora of retail traders, 30% of whom are ordinary citizens, have taken an interest in this cryptocurrency during the emergence of the coronavirus pandemic which provided just the right amount of push to make the paper finance system that one step closer to becoming obsolete, leading to the need for a new system. Preferably, one that is capable of peer-to-peer transactions that completely remove the middle-men while being less time-consuming than traditional banking. The numerous day-to-day trades of Bitcoin have led to rallies and crashes in the price of BTC. Of course, traders often employ the use of tools such as market indicators and crypto charts to keep track of the performance of cryptocurrencies so they can identify the right time to buy or sell their position to make a profit.
How to read crypto charts? Every trading chart that you will ever encounter will have either most or all of the characteristics mentioned below present in them or will be dependent on them in a direct manner. These values and tools can be used to identify the potential of a cryptocurrency to go down or up in the market and are extremely useful in understanding not just a cryptocurrency, but to understand the information that can be derived from looking at a crypto chart. This could include:
When a commodity is being traded on the market, it is traded at certain prices throughout a certain period. Specific prices are very important when understanding the volatility and trading patterns of a commodity. There are 4 price points, known as the high, the low, the close, and the open. Not necessarily in this order, but they are all very important. The high is the highest price that a cryptocurrency was traded at. The low is the lowest price. The close is the price at the time trading hours for the commodity ended. The open is the price at which a commodity was first sold in the trading hours.
This is the official name of the commodity that is often notarized by brackets around it. Such as, for Google the ticker sign would be GOOGL. If a trader was ever to try and see the price of Google stock, they would see the ticker sign rather than the name of the company. This is very useful in first finding the commodity you are looking at and will also apply to crypto-currencies. For reference, Bitcoin would have the ticker of BTC.
A trend line is a tool used by traders to identify the direction and magnitude of a trend for any commodity. It can be drawn by connecting two price points on a graph through a straight line. However, traders should be mindful of choosing the right price points. If the two points are too far apart, a relation may not be present yet the trader would be able to see a false alarm. In the meanwhile, if the two points are too close together, it may not be a good enough period to form a correlation. This is also a very useful tool for predicting the activity of a commodity in the future.
The trading volume is the total number of shares or units of cryptocurrency traded within a day or any given period. It is represented by the area under a price line in a line graph or price charts and is very important to understand the activity within the market.
These are lines that form price floors and price ceilings for a particular commodity. First, let’s discuss the support lines. A support line is an imaginary line that is drawn to indicate that a cryptocurrency will not drop any lower than that line. Often, when markets act volatile and start becoming bearish, this line is used to identify how low the price of a commodity can dip before the market re-adjusts to bring it back up again. And on the other hand, there is a resistance line. This is another imaginary line, except this one is used to identify the maximum price that a commodity can reach before the market begins to fear buying that commodity in fear of a sudden crash. Of course, there are other reasons for a market to stop buying at a resistance line. It is important to keep in mind that it is not out of the norm for a commodity to break past a resistance or support line.
The Graph is an initiative taken by three main individuals; Yaniv Tal, Brandon Ramirez, and Jannis Pohlmann. These three gifted people have banded together to create an independent query system that collects data and allows people to make queries for networks such as Ethereum (ETH). This has, in effect, allowed queries to be fast, reliable, and secure by allowing anyone to build and publish application programming interfaces known as sub-graphs that allow two applications to communicate with each other. The Graphs token, given the moniker of ‘GRT’, is dependent on three groups; Indexers that run The Graph’s nodes and earn a fee for each query made, Curators who decide what is being indexed, and delegators who get a portion of the query fee by delegating queries to indexers. Another possibility for GRT is the potential to provide support for layer one blockchain BTC among others. GRT currently has a market capitalization of $2.46 billion distributed among 1.245 billion units of GRT.
A crypto chart can be seen as a representation of the price of a commodity at any given time, or as the changes in price over a specific period. This period could be as small as an hour, or as big as 5 years. Furthermore, there are several different types of crypto charts. All of which, are used in specific ways by both beginners and experienced traders so that they can predict or speculate whether the price of Bitcoin will rise or fall. The following graphs are used to perform technical analysis on commodities. How to read crypto charts?
This particular chart functions by the use of candlestick-shaped figures to represent sets of data. There are two main elements of a candlestick; the wick, and the body. The wick represents the high price and the low price. These are the highest and lowest prices that a cryptocurrency was traded at, within the time represented by the presence of one candle. Generally, the high price will be on the top wick while the low price will be at the bottom wick. Another functional part of the candlestick is the body itself. This indicates the prices at the time of opening and closing of the decided amount of time that one candlestick represents. If the open price is higher than the closing price, the candlestick will be shown as red indicating that the overall price has fallen and that the candlestick is bearish. Consequently, the open price will be at the top of the body while the closing price will be at the bottom.
Similarly, a green candle will show that the closing price of the commodity is higher than the opening price indicating that it is a bullish candlestick. In this scenario, the closing price will be at the top of the body while the opening price will be at the bottom.
The use of candlestick charts is especially useful because it shows all 4 prices at once and can be overlapped with indicators that traders can analyze to observe the performance of a commodity like Bitcoin. There are also trading patterns that can be followed on a candlestick chart alone to be able to completely analyze the performance of a commodity. i.e three white soldiers, dark cloud cover, and a shooting star pattern. These patterns have corresponding trading strategies that allow traders to make a profit while buying or selling BTC.
The word Heiken Ashi is derived from the Japanese language and means “average bar”. When using traditional candlestick charts, each candlestick is independent of the previous or the next one. However, the Heiken Ashi uses an altered version of the close-open-high-low formula of traditional candlesticks in which information is taken from surrounding candlesticks to form a better picture of the performance of a cryptocurrency, for example. The formula for Heiken Ashi is mentioned in the image below;
Essentially, this formula is the only difference between the function of traditional candlesticks and Heiken Ashi candlesticks. Another key difference is the fact that Heiken Ashi candlesticks are filled when the closing is lower than the opening, while they are hollow if the closing was above the opening. The chart for Heiken Ashi seems smoother as it is an average of the price function rather than a direct representation of the price itself. A side effect of this formula is that the candlestick will not represent the current price, rather it would indicate an average price and would show the most likely trend that a cryptocurrency or commodity is going to follow.
One complication with the Heiken Ashi method is that without the presence of the first Heiken Ashi candle, the value of the current Heiken Ashi candle cannot be calculated. A work-around solution for this is to use the HLOC of a singular Japanese candlestick and place them in the formulas for Heiken Ashi. By using an average of the open, close, high, and low we can calculate Heiken Ashi close. This can be annotated by using the formula ((O+H+L+C)/4) while the formula for Heiken Ashi Open ((O+C)/2) is equivalent to the average of the open and close of the traditional candlestick. The use of this method creates an artificial candlestick which can be used to create a more legitimate candlestick with each derivation that is made.
Another key difference between Japanese candlesticks and Heiken Ashi candlesticks is that Heiken Ashi closing and opening is dependent on the close and open being above the midpoint of the previous candle rather than the open and close of the candle being analyzed. This difference is what allows Heiken Ashi candles to be more useful for identifying market trends.
One drawback however is that Heiken Ashi crypto charts are slower in terms of the signals it receives. When trying to read this particular chart, there are a few key points to be careful of;
During bullish times in the market, Heiken Ashi candles have big bodies, with long upper shadows but no lower shadows. The lack of lower shadows is due to the price action of the commodity being discussed, e.g. Bitcoin (BTC). However, during bearish times the situation for the shadows is reversed. With a long lower shadow and no upper shadow, a downward trend in price action is indicated.
In a bullish time, the candlesticks will be going towards an upward direction and will have a green color while bearish periods will often see candlesticks going downwards in red color.
These candlesticks are virtually opening and closing at the same price points, with only a slight fluctuation. A doji is the candlestick with the smallest difference in opening and closing price and has small shadows accompanying it indicating that the period was relatively inactive. This is usually an indicator of a reversal and is brought about by hesitance in the market.
Spinning tops, on the other hand, have bodies bigger than dojis but are still relatively small with long shadows that indicate a significant difference between the high and low of the candle. A spinning top shows the fluctuation of a commodity through a significant range, but it also shows that the price of the commodity comes back to a point very near the opening of the same time. I hope, you understand how to read crypto charts (candlestick charts) now.
When looking at line charts or bar charts, many traders will often decide about when to buy or sell a commodity long before they even consider getting involved in its trade. Even though it seems like a mundanely simple task to remember a single numerical value and check it, to be able to do the same thing repeatedly with almost 50 commodities would stress out even the most experienced and talented traders. This is where baseline charts come to the rescue.
Essentially, a baseline is a set value on either the X or Y axis of any chart. This value is set as a point after which cryptocurrency can be sold or bought to ensure profits or to control the bleeding of a cryptocurrency that is about to go belly-up. This line can be dependant on several different numerical formulae. One of which is the use of percentiles to set a value within a range of prices on the Y-axis.
Another use of baseline crypto charts could be to monitor the fluctuation of a commodity’s price from a value decided by the user of the chart. It will be highly effective in understanding how much the price of a commodity has fluctuated from its initial value.
Simply put, a Renko chart is used to measure the amount of time it would take the price of a commodity to go up or down by a set value. For example, by using a Renko chart to monitor BTC or Bitcoin, a new block would be added to the chart every time the price of BTC moves up or down by $100. On certain days, the value of bitcoin would increase by $1000 and would in turn create 10 new blocks on the chart within the same day, moving in an upward direction. In another case, if the price of bitcoin went down by $400 in 2 days, it would create 2 blocks for every day that would be moving downwards.
One application of Renko cryptocurrency charts is to filter out insignificant price changes by only focusing on the closing price of the block. This creates a focused outlook on the major trends within a specific market allowing traders to get a look at the bigger picture while being able to ignore the minute details or to look at them later on through a separate chart. Renko crypto charts have specific characteristics beyond their main function as well. One of which is the creation of new blocks at a 45-degree angle from their preceding blocks allowing for easy separation of fluctuations.
Similar to Renko charts, Line Break charts focus mainly on the way the price of a commodity fluctuates. The fluctuations themselves are represented by bars or lines that are directly related to the price movement of a cryptocurrency or commodity. A powerful tool in this type of chart is the use of a “number of lines” function. This function allows users to compare the HLOC value of one period with as many periods before it as specified. If the closing price of the current line is more than that of the previous 2 lines, for example, it will create a green line going upwards. However, if the previous two lines closed at a higher value, the current line will become red and will move downwards.
Three possibilities can emerge in line breaks. First, if the price goes in the same direction as that of the previous line, it becomes a new line with the same color. This allows users to see a similar effect to that of a Renko block. This will show two distinct lines one after the other showing a lapse in the time between those fluctuations
The second possibility is the emergence of a new line in the opposite direction of the previous line. This is caused by a significant change in price in the direction opposite from the previous line and would warrant a red line after a green line or vice versa.
The final possibility is that despite some change, the price does not rise or fall enough to require a new line to be made. In this case, the new line would be shown at a horizontal gap from its predecessor.
The benefits of using this type of chart are; the capability of being better able to identify support and resistance breaks which are indicators of reversals in pricing, spotting sudden breakouts towards that resistance, and finally to be able to spot classic patterns during trading hours.
One of the lesser-known and lesser-used charts, a Kagi chart is used to study and monitor the price fluctuations without setting a variable for the time it takes for the price to fluctuate. This acts as a double-edged sword by filtering out white noise created by using time as an independent variable. It makes the price depend on how much time it takes. However, this could sometimes be useful, it is also not advisable to only use a Kagi chart without any other price charts.
First, let’s analyze the structure of a Kagi chart by understanding the properties of the lines and the directions they go in. The main function is of the vertical line. This line goes in an upward or downward direction while being directly related to price going up or down. The next type of line would be horizontal. This is a line used to indicate that the price movement is changing directions, or more simply put to indicate a reversal taking place.
One tool in a Kagi chart is the ability to set a specific reversal value, meaning that a horizontal line will only form if the price of a commodity changes direction by either a fixed price value, a percentage change in price, an average true range (used for technical analysis) or even a singular closing price.
To interpret a Kagi chart, it is very important to understand one thing. That is the reason for a change in the thickness of a line. When the price of a commodity surpasses the high or low of the previous line, the line becomes thick at the exact low or high point it has crossed. This sudden change in thickness is often used to identify entry or exit points for a market and can be used to create buy or sell signals which can be very useful for traders of all levels. Sometimes, instead of a change in thickness, there can be a color change as well. This is simply an interchangeable function and has no implications on the mathematical properties of the graph.
Now, you know how to read crypto charts. If you are considering entering the market as a trader for cryptocurrencies, or any other commodity and have no knowledge of where to start, or of how you can monitor these stocks, we invite you to create an account on our website CoinCasso Exchange. So that you may be able to use all the tools that are used by professional traders in the stock exchange. We offer many articles that provide technical information such as technical analysis methods as well as tools to view all the different kinds of graphs we have mentioned above.
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