Cryptocurrency Chart Patterns Explained
There are a ton of different patterns to keep track of as short-term traders and swing traders, however, there are some key patterns that you absolutely need to know to be able to read the market like a pro.
In this section of the article, I will list some of the most popular cryptocurrency patterns that you will discover frequently while analyzing charts. Some of them have better hit-rate and these are the ones you want to focus on and leave the others.
In my opinion, these are the most reliable crypto chart patterns every trader or investor needs to know:
- Bearish Patterms
- Rounded Top
- Trading Ranges
I will describe how reliable each pattern is, what to do, and also the behavior that created the pattern. If you are familiar with some of the patterns already, feel free to skip to the one that you lack knowledge about.
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.
Crypto Market Sentiment: Bulls Vs Bears
Bitcoin and crypto markets move in three directions upwards, downwards, and sideways. A market that is moving upwards is considered to be bullish whereas a downwards one is bearish. A sideways market is considered range-bound or consolidating. The single most pertinent saying when it comes to crypto charts is:
Trend is your friend
Price direction is far more likely to follow the current trend than to reverse it. Market sentiment also follows this as long term trends do not change very often. Bitcoin bull and bear markets can last a couple of years before they finally reverse.
Within a trend can be several rallies, corrections, or pullbacks where it appears to reverse, only to resume the original trend after a period of time. After all, prices do not move in a straight line. Using crypto price analysis and chart patterns can reveal these potential changes in a trend on different time frames.
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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.
Which Are The Different Kinds Of Crypto Price Charts
When reading crypto charts it pays to understand which kind of cryptocurrency price chart you should use. All of them serve different purposes and its not always wise to use the same tool for different goals.
I would say that active traders are better off using bar charts while longer-term investors benefit from using line charts and similar.
Here is a table of the most common graphs:
I will go through each type of the different kinds of crypto price charts to give you an idea of what they are used for and give you some ideas of how you can use them yourself when you are reading the chart of your favorite altcoin. For illustrative purposes, I will use Bitcoin for each chart.
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What Is The Dow Theory
It is essential to know the Dow Theory to have a better grasp of technical analysis. The fundamental ideas behind Dow Theory are as follows:
- The market takes everything into consideration during its pricing. All existing, prior, and upcoming details have already been integrated into current asset prices.
- When it comes to crypto the things that are considered are multiple variables like current, past, and future demands and any sort of regulations that may impact the crypto market.
- Price movements are not exactly random. They follow trends more often than not and it may either be long or short-term.
History tends to get repeated. Because of this reason, it is possible to predict market behavior as traders react the same way when presented with a particular kind of pattern.
How To Trade With Trend Lines: A Full Guide Exemplified By Good Crypto
Technical analysis is often perceived as magic. Analysts seem to be forecasting the weather and able to predict what is about to happen next, making profits by doing so.
Besides news or fundamentals, an important part of predicting the movements of a market lies in what can be seen on the chart. That is exactly how technical analysts create their predictions.
This Good Crypto article aims to share the knowledge on how to interpret charts and see more than other traders or investors. Trendline trading and analyzing support and resistance levels is a crucial part of knowledge when trading price movements.
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How To Read Crypto Charts: A Beginners Guide
The first time you look at crypto price charts, they may look like hieroglyphics to you. But the good news is price charts are actually easier to read than you may think.
In this guide, you will learn how to read charts, and how to use some basic technical analysis tools that you can use to help you make trading decisions.
What Are Cryptocurrency Charts
You may start by learning how does cryptocurrency work. At their most basic level, cryptocurrency charts show the value of a specific digital currency over a set period of time. If youve ever looked at a stock market or business graph then youll be instantly familiar with the general layout. A single line goes up and down across the page or screen, showing how the value of the commodity has risen and fallen.
The aim of every investor is to buy cryptocurrency when the point of the graph is at a low point, selling your digital asset when they reach the apex and thats the difficult part! But with the help of graphs showing your preferred cryptos upwards and downwards trends, its possible to make some informed decisions that could reap you the best rewards.
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What Are Support And Resistance
In technical analysis, support and resistance are predetermined levels of the price of an asset at which the tends to reverse its trend. These levels are denoted by multiple touches of price without a breakthrough of the level. Traders often buy at support and sell at resistance. In order to see how support and resistance levels work, lets look at the daily BTC/USD chart from Bitfinex.
The Market Incorporates New Information As Soon As It Becomes Available
The price of the asset changes to take any new news into account. Asset price is an accurate reflection of the hopes, fears, and expectations of the market participants. The market price integrates factors such as interest rate movements, earnings expectations, revenue projections, major elections, product initiatives, etc.
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The Market Reflects Everything
The first tenet of the Dow theory is one of the core principles of technical analysis: that the market reflects all available information in the prices of assets, and prices such information accordingly. For example, if a company is expected to report positive earnings, the market prices the asset upwards.
The principle is close to whats nowadays known as the Efficient Market Hypothesis , which states that asset prices reflect all available information and trade at their fair value on stock exchanges.
Support And Resistance Basics
Support and resistance lines are drawn horizontally, unlike trend lines. Trend lines show a trend and therefore slope either up or down.
- Support is a level where there are many buyers
- Resistance is a level where there are many sellers
These levels are seen as regions, rather than lines. A support region or zone is simply a level where the price has been supported, or resisted, more than once before. This means that the support and resistance indicator can identify levels of importance for traders. Identifying support and resistance levels is of great importance when trading.
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A Beginners Guide To Reading Cryptocurrency Charts
Crypto charts usually let you view them over a range of time frames, whether thats a complete history of a specific digital asset or just the past 24 hours. Zooming in and out lets you spot repeating patterns. Its historically been the case that prices rise dramatically following a crypto halving event, for example, in which it takes twice as long to mine each Bitcoin than it did previously when crypto mining. This is the sort of information that can easily be spotted from a Bitcoin chart, even for those with no previous experience of buying crypto.
Its worth viewing crypto charts in tandem with the latest crypto news stories, as they have such a strong impact on values. Theres a very clear link between big businesses investing in or selling crypto or even making comments about a digital currency on social media and an almost immediate corresponding rise or fall in its value.
Even a basic understanding of crypto charts can give you a good indication of the best crypto to invest in right now. Successful outcomes cant be guaranteed, but you can definitely give yourself a real advantage if you learn how to make the most of the information available to you.
The Stock Market Averages Must Confirm Each Other
To understand how this works, consider this example. There is a company A and a company B. Suppose A is a handicrafts company and B is a transportation company. A uses Bs service to transport their products. Now, if A gets more business, then B will get more business as well since A will need B to transport their goods and vice-versa.
So, if an investor is interested in investing in company A, they need to look at the performance of company B. These two averages should be moving in the same direction. If these two averages are diverging, then it is a sign that market trend may be reversing soon.
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Fibonacci Retracement And Extension Levels
The Fibonacci retracement and extension levels are specific mathematical ratios derived from the Fibonacci sequence.
Popular retracement levels to watch for include 0.618 or 0.5, as well as 1.618, 2.618, and even higher when using Fibonacci extensions which traders use to determine how far the price can travel after a pullback. Although the exact mechanism by which these levels operate as support and resistance is unknown, these ratios are present throughout nature and are extremely powerful.
Line And Candlestick Charts
You probably remember line charts from high school. They work the same way on a digital currency chart as they do while graphing other things that change over time.
On the horizontal axis is time, and the price is measured on the vertical axis. To check the price of an asset at a given time, you just have to look for the time you want on the X-axis and look straight up to see the price of the asset at that moment.
You can dig a little deeper by analyzing the slope of the lines between two sets of price points with the same time period. The steeper the angle of the line, the faster the price went up or down, which may indicate how strong the price action was.
Line charts, however, only tell you so much. Candlestick charts provide far more information. Below, you can see what a candlestick looks like, and what it tells you.
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The Different Lines In The Bollinger Band
There are three lines that makes up the Bollinger Band:
- The simple moving average of the time period that you chose. This is the middle curve in the band above.
- The positive standard deviation which is the upper curve.
- The negative standard deviation which is the lower curve.
So, how do we calculate this? You already know how to create a simple moving average curve. Now, lets look into standard deviation. Standard deviation is a mathematical measurement of average variance and features prominently in statistics, economics, accounting and finance. A standard deviation calculates how much the current value of an asset deviates away from its average value.
Support And Resistance Levels
Reading live crypto candlestick charts is easier using support and resistance levels, which can be identified with the use of trendlines. Trendlines are lines drawn on charts by connecting a series of prices.
Support levels are price points during pullbacks in which cryptocurrencies or any other asset are expected to halt due to a concentration of buying interest at that level. Resistance levels are price points in which theres concentrated selling interest. Concentrated buying and selling interests make it hard to get past these levels.
Support and resistance levels can be identified through trendlines, as these make it easier to identify crypto chart patterns. An uptrend line is drawn using a cryptocurrencys lowest and second-lowest lows in a given timeframe. Levels touching this trendline are seen as support.
A downtrend line is drawn using the cryptos highest and second-highest highs, with levels touching this line being seen as resistance levels. As the name suggests, downtrend lines are used during downtrends, while uptrend lines are used. Various strategies can be used based on trendlines and support and resistance levels. For instance, some technical analysts simply buy near the support of uptrend lines and sell near the resistance of downtrend lines.
Support and resistance levels can also be determined using long-term moving averages. These are common technical indicators that smooth price data by creating a constantly updated price average.
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Recapping How To Read Candlestick Charts Crypto And Other Cryptocurrency Price Charts
This guide has went into great detail on how to read candlestick crypto charts and gone over all of the basics of crypto chart analysis.
Japanese candlesticks provide important market data about each trading session open, close, high, and low, which traders can use to analyze and discover chart patterns. Understanding cryptocurrency charts can be highly profitable, as it allows traders and investors to predict future outcomes of markets or when trend reversals might arrive. Combining candlesticks with trendlines and technical indicators is the key to profitable technical analysis.
Top 5 Crypto Chart Patterns
There are hundreds of different chart patterns out there, but a handful of them have survived the test of time. Since chart patterns are so subjective, there arenât any âprovenâ patterns that work better than others, as is the case with less subjective analytical tools. Most traders identify a handful of chart patterns that work best for them.
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How To Read Crypto Charts: 2022 Complete Guide
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Reading crypto charts is an important skill for anyone who wants to trade digital assets. Understanding crypto charts will allow you to perform the technical analysis necessary to make investing decisions.
Heres what to know:
What Is Fundamental Analysis
Fundamental analysis refers to the study of qualitative data such as industry news, corporate announcements, government action, international affairs, legislative changes, consumer sentiment surveys, and more. This type of data is different from hard quantitative data such as past asset prices and moving averages.
In the context of cryptocurrency trading, fundamental analysis pieces may include information such as ICOs, crypto platform news on social media, news on new funding obtained by a platform, news on hacks and security breaches, laws introduced by governments to regulate crypto, and so on. For a savvy crypto trader, it is important to supplement reading crypto charts with fundamental analysis sources.
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How Do Line Charts Work
A linear line chart
Line charts are the most basic kind of crypto chart. Line charts display the historical price points of an asset. Youll see a green line on the chart above. This relates to the scale of the right hand side, representing BTCs price in USD . For cryptocurrencies, these are generally made up of the daily closing prices within a particular time frame. Time frames for chart viewing can be measured in whatever length you want to see, whether minutes, hours, days, weeks, months, or years. If you are an experienced trader, youll likely want to focus on minutes and hours. If youre a HODLer looking for longer-term investment, monthly will be more suitable.
Its also important to remember that line charts come in two different scales: linear and logarithmic. You can easily alternate between these by toggling between them . In the linear chart, the price scale is divided into equal pieces. In the log chart, the crypto price is scaled according to percent changes, so if two price changes are different in absolute value yet equal in percentage, they will both be represented by the same vertical shift on the log scale. Both charts have their uses. With a linear chart, you can better judge the speed of price changes, whereas log charts make it easier to identify trends.
A logarithmic line chart