Developing the right skills on how to read crypto charts is an art. This new skill will help you not only track the price of your favorite coin, but the crypto candlestick charts will actually tell you a lot about the trend of the market as well.
Our team at Trading Strategy Guides is a strong advocate of using charts and technical analysis. Crypto candlestick charts give you a more objective view on the cryptocurrency price versus something that’s a little bit more subjective like using your intuition.
How to Read Crypto Charts – Beginner’s Guide
Timing the market is a common problem that many new traders have. If you want to have accurate entry and exit points you need to use cryptocurrency charts. You can have a really great trading idea and believe that Bitcoin is about to go up, but if you pick the wrong point, you’re going to start losing money left and right.
If you exit too early or you exit too late you can also leave money on the table. Using crypto charts in combination with technical analysis, you can balance that out.
In this cryptocurrency guide, we’re going to cover just some basic fundamentals on how to read crypto charts and the cryptocurrency analysis tool that you need to succeed in this business.
We’re also going to outline our favorite cryptocurrency analysis tools and resources for trading Bitcoin and altcoins.
Crypto Candlestick Charts
There are several different ways to look at the charts, but our favorite crypto price chart is the Japanese candlestick chart.
Moving forward, we’re going to show you how to navigate through a crypto price chart.
Now, these are the key elements of the crypto candlestick charts:
Step #1 Time Selection
The crypto charts allow you to select the time frame you want the candlesticks to cover. This implies that the crypto candlesticks will show all of the transactions that took place in the selected time frame.
For example, if your favorite cryptocurrency time frame is the 5-minute chart, then each candle will represent 5 minutes.
Obviously, the time frame can be adjusted to even make it more customizable, or you can simply pick from the default time frames (5-minute, 15-minutes, 1 hour, 4 hour, daily, weekly, monthly).
Step #2 Volume
The second thing the standard cryptocurrency chart will display is the volume. The volume will show you how much trading activity occurred during the selected time frame. Learn more about volume trading strategies here.
The longer the volume bar is, the more buying or selling pressure is. A green volume bar will highlight an increased interest in the coin and buying pressure. On the other hand, a red volume bar will highlight a decrease in interest in the coin and selling pressure.
Step #3 Bearish and Bullish Candlesticks
Third, we need to distinguish that there are two types of candlesticks:
- Bearish candlesticks
- Bullish candlesticks
By default, the bullish candlesticks are represented by green candles, which indicates that the price has increased during the selected time frame. For example, if the closing price of a 5 minute candle is higher than the opening price, that’s a bullish candlestick.
For bullish candlesticks, the bottom of the thick section represents the opening price while the top of the body represents the closing price. The candlesticks wicks represent the highest and lowest prices during the selected time period.
*Note: Apply the same rules in reverse for bearish candlesticks.
The candlesticks will come in different shapes and forms. These candlestick price formations are a great way to predict future market trends. There are many candlestick combinations that can predict what will happen next and we call them chart patterns.
Step #4 Price Action
Price Action is simply reading the chart to predict price movements. There are many methods that can be applied with price action, you may choose one or several of them if you like. Here a few price action tools you can put in your technical analysis tool belt:
a) Trend Lines
Trend Lines are simple lines drawn across the tops or bottoms of the candlesticks. They can be drawn from peak to peak, or valley to valley of price moves. They can also be drawn from recent highs/lows, or back much further in time from longer term highs/lows. Trend lines are very simple but can also be complicated because there are endless possibilities for placement. If you are looking for a good trend line strategy check out this article here
b) Support and Resistance
Support and resistance are like ladders that price action has to climb up or down. You can draw support lines by drawing a horizontal line from the bottoms of candlesticks that are touching at the same levels. Resistance is just the opposite, drawing the horizontal lines across the tops of the candlesticks. Like trend lines there are hundreds of ways that can apply them. For more detail on support and resistance strategy check out this article.
c) Price Patterns
There are many different price patterns that you can use to trade cryptocurrencies. We are not going to go into all of them. Just know that they are combinations of trend lines and support and resistance that can be used together to form trading strategies. If you are looking for a good price pattern strategy check out this article here.
In order to discern the information you get from the crypto candlestick charts, you need the right tools:
Cryptocurrency Analysis Tools
Now we’re going to share the best four cryptocurrency analysis tools to start trading Bitcoin and other coins. This section is not just for the crypto beginners, but it’s also dedicated to more experienced traders.
There are many technical tools out there, and you probably are going to want to use a variety of them in combination. We believe these trading tools will help you avoid the sh*t coins and losing some of your money, or simply make better trades overall. Learn about the Best Cryptos to Invest In Here.
Cryptocurrency Analysis Tool #1 TradingView
The best cryptocurrency analysis tool we like to use is the FREE Trading View charting software. This charting platform has many capabilities and hidden features that will make your trading run smoothly.
This is just a tool that it’s nice to have, but it’s not the end-all-be-all as there are other tools that you can use at your discretion.
It’s extremely easy to set up and use TradingView. It’s rich in resources, instruments you can follow and more importantly
Cryptocurrency Analysis Tool #2 Money Flow Indicator
Our second favorite cryptocurrency analysis tool is the Chaikin Money Flow indicator.
The Chaikin Money Flow indicator was developed by trading guru Marc Chaikin, who was coached by the most successful institutional investors in the world.
The reason why Chaikin Money Flow is the best volume indicator and it’s better than the classical volume indicator is because it measures institutional accumulation-distribution. So naturally, it shows when the institutional traders are buying and selling.
Typically on a rally, the Chaikin volume indicator should be above the zero line. Conversely, on sell-offs the Chaikin volume indicator should be below the zero line.
Cryptocurrency Analysis Tool #3 Crypto Fear and Greed Index
The crypto fear and greed index is using a bunch of information, they gather all that data together to come up with a score and a valuation that is plotted on a graph for you.
When the sentiment is showing a reading below 20, that’s extreme fear. Usually, the cryptocurrency price is down and it signals a possible bullish reversal. Inversely, a market sentiment reading above 80 shows extreme greed. In this instance, the cryptocurrency is up and the fear and greed index signals a possible bearish reversal. For more info read this guide on Crypto Signals.
Basically, we use the fear and greed index as a contrarian indicator. Market sentiment is a powerful thing that drives the market, and when we have an extreme reading in the market sentiment, that’s the time we should look for a reversal. Also, read this guide on Crypto Trading Bots.
Cryptocurrency Analysis Tool #4 Fibonacci Extension
The Fibonacci extension is an extremely useful tool that can be used to spot counter-trend opportunities as well as reversal trades. We like to focus on the 1.618 level or the golden ratio.
There are all kinds of rules, but fundamentally, there are only two things we’re looking for when using the Fibonacci extension levels. The first thing is a trend, the second is a correction that has three swing points of reference. We use these swing points to draw the Fibonacci extension levels and find possible reversal points in the market. Read the Fibonacci trading here.
The golden ratio can be found everywhere, it’s also a “magic number” that we can use in our trading as well. In one way or the other, a lot of professional traders incorporate the golden ratio into their trading because the market reacts to this particular level with a high degree of accuracy.
Reading crypto candlestick charts is a practical skill for surviving today’s challenging cryptocurrency market. While the cryptocurrency analysis tools can be valuable to your trading arsenal, you need to apply them correctly to gain any insights from them.
The cryptocurrency candlesticks guide can help you time the market. Feel free to use it as a complementary tool for your research.
This guide outlines only the basic concepts in how to read crypto charts. We recommend strengthening your knowledge and using the suggested tools to build your cryptocurrency strategy that fits your needs. Our TSG blog is rich with trading strategies that can help you achieve your financial goals, so make sure you check our Best Bitcoin Trading Strategy.
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