The Japanese Candlestick Charts
The graph above is the daily candlestick chart for BTC/USDT in Binance. What we are going to do now is to help you make sense out of those pretty patterns. The first thing you will notice is the red and green candlesticks lying one after another. Each candle shows you the price movement of the asset during a specific time interval.
So, what does each of these candlesticks represent?
Along with the closing price, each candle shows the opening price, the lowest, and highest price of the given time-period as well as the closing price. As you can also see, there are to kinds of candlesticks, the green candle, and the red candle.
Every candle has a body and a couple of shadows that are sticking out of it. The body shows you the difference between the opening and closing price. The shadows show you how high or how low have these opening and closing prices have gone respectively. In a green candle, the upper shadow is the close price while the lower shadow in the open price and vice-versa for red candlesticks.
The beauty of these candlesticks is that it clearly shows you exactly where the market turned and helps you identify different patterns which may help you predict how the market will act.
Having said that, lets look at three bullish and bearish reversal patterns on our candlestick graph.Bullish Reversal Patterns
The hammer is a 1-candle pattern which has:
A hammer is a bullish reversal pattern that forms after a decline in price. So, what does it exactly mean?
Analyzing Different Time Frames
It might be obvious, but still worth saying that different time frames are suitable for different types of trading. In cryptocurrency trading and charts, there are three types of time frames used: long-term, medium-term, and short-term. Each one favors different trading styles, has its own trend and triggers time frames. In the table below you can see which time frame is the best for certain trading style:
|Hourly Trend||15-minute Trigger|
With different styles and time frames come different trading strategies. After all, if you are swing trading, then you dont need to make decisions as fast as those scalping. Even if in both cases you need to keep calm and make measured decisions, you have different trends to keep track of. Still, it is helpful to keep track of every time frame, as long-term cryptocurrency charts can show you a bigger picture, but short-term ones will allow you to notice the breakpoint of the trend emerging/ending.
By the way, weve already published an article about day trading strategies.
All in all, it depends on your trading style and your overall goal: for those who are here for a long haul, long-term time frames are more important than minute changes in trends. In contrast, those who want to make a quick profit from changes in trends, short-term time frames would be of a bigger interest.
What Are Moving Averages
A moving average is one of the most commonly used types of technical indicators and essentially cuts out the noise by generating an average price for a given cryptocurrency. Moving averages can be adjusted to periods and offer useful signals when trading in real-time crypto charts.
The most commonly used moving averages are used for 10, 20, 50, 100, or even 200-day periods. These make market trends more visible, with a 200-day moving average being considered a support level during an uptrend, and a resistance level during a downtrend.
There are different types of moving averages used by traders. A simple moving average simply adds together the average price of an asset over a determined period and divides it by the number of periods.
A weighted moving average gives more weight to recent prices to make them more responsive to new changes. Similarly, an exponential moving average gives more weight to recent prices but is not consistent with the rate of decrease between one price and its preceding price.
Moving averages are lagging indicators as they are based on past prices. Traders often use moving averages as signals to buy and sell assets, with the periods determined depending on their timeframes.
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Summary: Understanding Cryptocurrency Charts
Learning how to read Bitcoin charts is the same as learning how to read crypto charts in general. If you are trying to read crypto price charts from any platform at all, for example, reading binance charts, it all comes down to the same factors, such as candlesticks, chart patterns, and technical analysis indicators.
The Market Has Three Types Of Movements
Within each primary trend, theres also a secondary trend taking place across weeks to months. This price action is exhibited as a correction or consolidation.
Minor trends last only days to weeks, and are mostly noise on the chart in terms of overall trends. The image below shows the same price action across primary, secondary, and minor trends respectively.
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What Does This Mean
The buyers took control as the market opened and pushed the price high.At the close, there was huge selling pressure from the bears.The selling momentum was so strong that it overwhelmed the bulls.
In short, a Shooting Star signifies a bearish reversal and shows that the sellers are coming in strong into the market.
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Also Check: How Do I Start Mining Bitcoin
How To Read Cryptocurrency Charts Watch Later
How to read crypto charts for dummies. Moving forward, were going to show you how to navigate through a crypto price chart. When a technical analyst examines the price chart, along with the technical tools, they also need to be mindful of the time frames that they are considering. Blockchain in layman terms is a decentralized public ledger or record of transactions.
At finance illustrated, we understand how valuable your time is. By the time you finish this article, you will have a strong understanding of how using this kind of crypto chart can advise your trading decisions. Four pieces of data, gathered through the course of a securitys trading day, are used to create a candlestick chart:
To gauge momentum, check the depth of corrections . In this video on how to read crypto charts for beginners, well show you how to recognize some of the most basic patterns and how to use them for your trading strategy. Look, once you master charting, you can see the patterns for crypto, stocks, futures, and the rest.
One of the most important things to know is the time signature or time scale. Opening price, closing price, high, and low. Some of you may be asking how to read trading charts for cryptocurrency.
What are the time frames for crypto charts? The crypto charts allow you to select the time frame you want the candlesticks to cover. After reading this guide, youll be equipped with all the knowledge youll need to start profiting from crypto right away.
Different Time Frames For Crypto Charts
When a technical analyst examines the price chart, along with the technical tools, they also need to be mindful of the time frames that they are considering. Popular time frames that traders most frequently examine include:
- 15-minute chart
- 4-hour chart
- Daily chart
The time-frame that a trader chooses is directly dependent on their personal trading-style. Traders broadly fall into two categories:
Intra-day traders: These are the traders who open and close their position within a single day. This is why these traders prefer short timeframes like hourly, 15-min, or even 5-min charts.
Long-term holders: Long-term holders may hold their position for weeks to months and years. These holders find more value in using hourly, 4-hour, daily, or even weekly charts.
A 15-min chart may be a very significant indicator for an intra-day trader but it may not be that important for a long-term holder.
Recommended Reading: Where To Buy Solve Crypto
How To Read Candlestick Charts
Now that we have all of that out of the way, lets dive into how to read crypto charts! By far the most popular type of crypto chart out there is the Japanese candlestick chart.
Each candle on a candlestick chart shows the price movement of the asset you are trading during a specific time interval. Now, the top whisker, which is known as a shadow, shows the highest price that the asset reached during the time interval in question, while the bottom whisker or shadow shows the lowest price that was reached during the time interval being observed. And naturally, the box, also known as the body, shows the difference between the opening and closing price of the asset during that time interval.
There are 2 types of candlesticks you will come across when reading crypto charts:
Knowing how to read a candlestick chart can help you observe, understand, and predict market turns. While this is, of course, a high-level overview, know that you can study and learn different candlestick patterns and what they mean for the market.
Understanding both single and multiple candle patterns, as well as what the length of each wick may mean, will help you make more informed trading decisions.
Planning To Trade In Cryptocurrencies Heres How To Read Crypto Charts
- Date : 05/08/2021
- Read: 6 mins
All you need to know about deciphering charts in order to trade in crypto.
Technical analysis is a tool to analyse historical data and trends to predict future price movements. It is a 2D data set where the graphs project the price and time. Hence, it is a data analysis tool to study price patterns over a period of time.
The underlying asset for technical analysis could be anything: stocks, commodities, currencies or the hottest topic of the town and everyones favourite cryptocurrencies. Cryptocurrencies are just a different type of asset class, but technical analysis works perfectly well.
Technical analysis as we know it today was first introduced by Charles Dow who postulated the Dow Theory in the late 1800s. It is very important to know the principles of Dow theory.
As mentioned earlier, technical analysis revolves around price and time.
Let us now understand the time aspect of technical analysis. The X-axis of the graphical representation of any chart denotes time. It is widely accepted that the long-term trendline of any asset is at 45 degrees i.e. price and time move in sync.
A sudden rise in the price in a very short time causes a consolidation or a pullback before it starts a fresh bullish momentum.
What are crypto charts?
Let us now understand the buying zone and selling zones with the help of support and resistance.
What are supports?
What are resistances?
Time frames for technical analysis
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S For How To Trade Crypto Using Chart Patterns
Important tips on how to best use Chart Patterns for trading, including:
- Which crypto assets are used for pattern recognition?
- Time interval selection.
- Success rates of various patterns.
- Profit potential.
- Best time to enter a pattern trade.
- When to exit a trade.
- Aligning with trend.
We also recommend you watch an introduction video about using altFINS Patterns section.
Lets first break down the various components of our pattern charts:
1. Which assets are used for pattern recognition? altFINS analyzes the top 500 coins and this list is updated every quarter.
2. Time interval selection. Patterns are identified over 4 time intervals . Novice traders should use higher time frames while more experienced traders can use lower time frames. It also depends on how much time you have to monitor your positions. Lower time frames require more frequent trade management . However, the success rates of the patterns are about the same across these time intervals. So a Horizontal Level Breakout has about the same chance of success on a daily interval as it does on hourly interval.
Lower intervals will of course have more patterns forming, more frequently.
Note that Basic plan users get access to 1D interval, Essential users get access to 1D and 4H interval, and Premium users get access to patterns on all four intervals . More details on subscription plans.
Based on historical backtests, the success rates of the patterns on our platform are as follows:
What Is A Candlestick Chart
A candlestick chart is a type of chart that is visualized with red and green candles. Each candle represents one unit of time frame denominated in minutes, hours, days, weeks, and even years. Candlesticks can represent lower or higher time frames.
Lower time frames are typically minutes, and they include:
In terms of information, candlesticks visualize five pieces of incredibly important data which traders commonly refer to as OHLCV – Open, High, Low, Close, and Volume. However, do keep in mind that traditional candlesticks visualize no sort of data in regards to volume. Instead, this is shown elsewhere on the chart.
To provide a better understanding, we will cover each major component independently. We recommend observing the illustration below while reading the OHLCV components.
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How Traders And Investors Read Bitcoin And Crypto Charts
There is a big difference in how to read crypto charts depending if you are a short-term trader or an investor. Day traders are focusing on smaller details and need a very detailed chart to guide them through the day while investors need an objective graph that shows the bigger picture and longer-term trends.
There are different tools to use for both traders and investors and in this section, I will show you which graphs are best suited for each time frame. The four different time frames are:
- Swing Trading
- Long-term Investing
Below follows a description of the most effective crypto charts to use for each type of trader and investor:
Crypto Fear & Greed Index
The Crypto Fear and Greed Index provides an approximation of overall market emotions. Using a variety of data, the index shows a value between 0 and 100, with 100 being maximum greed and 0 being maximum fear.
This is a contrarian indicator, meaning investors might use it to do the opposite of what everyone else is doing. When the index reads below 20, that signals extreme fear, and could mean buying opportunities. When the index reads above 80, that signals extreme greed, and could mean its time to take some profits.
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Why Is Understanding A Crypto Chart Important
To trade cryptocurrencies, youll need to know how to interpret crypto charts. To execute successful cryptocurrency trades, you must perform competent technical analysis based on the Dow Theory. You must be able to interpret candlestick charts and discern resistance and support levels. Youll have the best chance of predicting market trends if you can read market emotions in this way.
When Does A Candlestick Pattern Start To Show
The candlestick pattern is a combination of some candlesticks representing a story about buyers and sellers for a particular time. However, the price movement in the financial market depends on supply and demand and traders emotions. As soon as the price reaches a resistance or support level, candlestick patterns will start emerging.
Therefore, when the price moves to a significant price zone, the candlestick pattern will become very important.
For example, the high psychological level of $60,000 has become a strong resistance level that attracted many buyers and sellers.
See the chart below to learn how to read candlestick chart:
Here Bitcoin made an indecision candle near the significant round number $60,000, indicating a starting point of the pullback.
The price fell with an impulsive bearish pressure towards the downside.
So, what will you do if you find an appropriate candlestick pattern at a critical support or resistance level?
You should closely track the buyers and sellers activity and enter a trade once the direction is set. The best solution is to wait for an appropriate candlestick pattern at support or resistance levels and enter the trade after a rejection.
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Trends Tend To Continue
Figuring out exactly when a trend is about to reverse can be difficult if not impossible much of the time. Many believe its better to just identify existing trends and try to ride on that momentum.
But how do you know exactly when a trend has changed? Its difficult to say, and traders might disagree. In general, its when a pattern breaks down or prices close above resistance or below support, for example, the trend may have changed course.