How to Read Crypto Charts: A Comprehensive Guide for Beginners

By: | Tags: | Comments: 0 | September 29th, 2023

how to read crypto indicators

Now that we’ve talked about some of the candlestick patterns you will encounter, let’s get into how they may be interpreted as bullish or bearish. There are dozens of different candlestick patterns to learn about, but before we go into detail, we need to learn a few more terms and ideas that will help you understand candlesticks better. When these candlesticks are placed one after the other, they form a chart that indicates a succession of historical price movements for the asset. They are both ends of the spectrum, and neither is less important than the other. Technical analysis is a rational (technical) overview of the patterns on the crypto charts.

how to read crypto indicators

Market Structure

No trader uses every single technical indicator, nor every indicator for every trading instrument. Some prefer to use moving averages or the RSI with certain financial markets (e.g., futures or options). Knowing how to read crypto charts is a big advantage when trading crypto. It will provide a better idea of when to enter or exit a trade, increasing potential profitability.

A Guide on How to Read Crypto Charts

As discussed in our previous article about how to read a crypto chart, the candlestick indicates the price movement of a crypto asset over a specific time period. You may how do the balance sheet and cash flow statement differ feel overwhelmed by how much you need to learn when you are new to cryptocurrency trading. These are just a few examples of charting software available for crypto trading.

#1: The Importance Of Having A Trading Plan

Harami is Japanese for ‘pregnant’, and the candlestick pair resembles a pregnant being. The pattern shows a heavy price drop, followed by a slight recovery within the bounds of the preceding decrease. For our first example of a bearish candlestick pattern, let’s recall the hammer. This candlestick is now called hanging man, and it can suggest that the bullish run of an asset’s price has reached its peak.

  1. With that said, candlesticks should never serve as the definitive indicator for your trades, no matter how experienced you are in crypto trading, particularly if you start trading bigger volumes.
  2. The goal is to assess the overall sentiment of the crypto community, investors, and the general public’s attitude towards specific cryptocurrencies, market trends, and related events.
  3. Created by respected technical analyst and trader John Bollinger in the 1980s, Bollinger bands are used by crypto traders to measure changes in volatility and identify potential buy and sell signals.
  4. These are called continuation candlestick patterns, and detecting these patterns can help traders consider whether or not they should stay the course with their investments.
  5. Trend indicators help traders to identify the direction of the trend, while momentum indicators measure the speed and strength of the trend.

Using crypto price analysis and chart patterns can reveal these potential changes in a trend on different time frames. The best chart for cryptocurrency trading depends largely on your personal trading style and goals. Many traders prefer candlestick charts because they provide a lot of information at a glance and are easy to read.

95% of traders fail because it is a volatile market with significant risks. Professional traders suggest a risk management plan of trading no more than 1% to 2% of your capital per trade. So, starting with $50 means your stop loss can be no more than 50 cents. Novice traders navigate this situation with smaller stop losses, which is rarely the answer because the market will bounce you out when it retraces in standard price action. Download the free MetaTrader software to your desktop and access multiple trading tools and market order options. Before downloading, check that you can connect MT4 or MT5 from your crypto exchange if they use that charting software.

Long term traders and hodlers will only be interested in the daily, weekly, and monthly charts. Adding these two indicators to a Bitcoin price chart can help to identify when prices are at the upper or lower limits of their potential movements and when a major trend reversal is in process. It is worth pointing out that trading charts and pattern recognition aren’t unique to crypto; it is fundamental to trading any asset, though the specifics may vary. In order to understand it, you must start by familiarising yourself with the tools that will enable you to annotate and draw charts. Reading and interpreting cryptocurrency charts is a crucial skill for anyone involved in the trading of cryptocurrencies.

Some common leading indicators used in crypto trading include the Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), and Stochastic Oscillator. Fibonacci Retracement is a popular technical analysis tool used in cryptocurrency trading to identify potential support and resistance levels. It is based on the Fibonacci sequence, a series of numbers where each number is the sum of the two preceding numbers. In trading, Fibonacci retracement levels are calculated by dividing the difference between a cryptocurrency’s high and low prices by Fibonacci ratios, typically 23.6%, 38.2%, 50%, 61.8%, and 100%. Candlestick charts provide visual representations of price movements and patterns, helping traders to identify trends, support and resistance levels, and potential entry or exit points. Learning how to read crypto chart patterns is easy, most of the research has already been done.

Jan is a direct response copywriter, SEO writer & case study specialist. Jan became interested in cryptocurrencies in 2016, starting with a small portfolio of coins. I had no emotional attachment when I returned to trading, and my account grew steadily. If you’d like a deep dive into how to master your emotions, get a cup of coffee, get comfortable and read the in-depth trading psychology article.

This, in turn, can help guide your trading decisions and potentially increase your chances of making profitable trades. However, others might prefer bar charts, line charts, or even more advanced chart types like Renko charts or Heikin Ashi charts. Dow Theory encompasses a variety of market trends, key among them are primary trends that can endure for over a year, embodying the well-known bull and bear markets. The value of crypto assets can increase or decrease, and you could lose all or a substantial amount of your purchase price.

Please note that our Terms and Conditions, Privacy Policy, and Disclaimers have been updated. Fibonacci retracement levels are also an important tool for the crypto trader’s armory. In brief, Leonardo Fibonacci was an Italian mathematician who discovered a simple series of numbers that created ratios describing the natural proportions of things in the universe. When prices repeatedly return to the same level, without breaking above it, the resistance there strengthens.

There is also a histogram that represents the difference between the fast and slow moving average. Moving averages also often provide zones of support and resistance, indicating further momentum in that direction when they are crossed by the price. The Bitcoin price chart above shows two instances over the past year or so when these crypto patterns have been observed, and the prices have risen or fallen accordingly in the months that followed.

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