So, you want to trade in cryptocurrencies but want to avoid losses. If that is the case, you have to do research and invest or trade in only those cryptocurrencies that are likely to offer you a return. But how to find such a cryptocurrency? You can do this by reading and analyzing a cryptocurrency price chart.
Trading in cryptocurrency is an art, and you can successfully do it if you have the drive and the willingness in yourself. In this article, you will learn how to read a cryptocurrency price chart. Moreover, you will learn about some common types of crypto price charts.
Hence, to learn more about crypto price charts read on to the end of the article.
Basics of a Cryptocurrency Price Chart
The benefits of decentralization are enabling businesses to move toward crypto transactions. As crypto trading becomes popular, many individuals and institutions are intent on getting a piece of the crypto market.
Whether you want to perform peer-to-peer transactions or just buy crypto as assets, you need to know how to read a chart. This will enable you to become a better trader.
When it comes to trading, there are different types of charts available. Everyone uses a chart that suits them and their trading process better. Generally, most trading exchanges offer you the necessary tools to help you in the trading process.
On the other hand, you can also prefer to analyze using chart software systems. However, for some people, it might be a trickier option. To learn about the best charting platforms, you can check out the blogs at Coinfomania.
In fact, there are some good cryptocurrency charting platforms like TradingView. Here, you can get a lot of data even with the free version of the platform. Also, these charts are simple and give you a clean interface.
Types of Cryptocurrency Price Charts
Once you choose a trading platform or software, you have to choose the type of chart that suits you the best. Here are some of the most popular cryptocurrency price charts that you will find on top trading platforms:
1. Candlesticks Charts
A candlestick chart will have a red candle and a green candle on the timeframe. Here, a red candle means the price is going down, while a green candle means that the price of the crypto is going up. In general, you will find multiple patterns of candles in use in those charts during analysis.
This chart is the most common among beginner traders.
2. Line Charts
This chart consists of a line that connects data points. This way, you can check trends in crypto. Primarily, it is a basic chart that lets you understand trends over a period of time.
3. Bar Charts
These are quite similar to candlesticks charts. However, the only difference is that there are only red and green bars instead of candles. These bars just indicate price movements.
4. Heikin Ashi
“Heiken Ashi” means average pace. It is a Japanese financial chart and a trading indicator. Although they are similar to candlestick charts, they are much more smoother to look at. Also, you can track a variety of price movements with the help of these charts.
Here, you do not need to track every price movement separately as you do in a candlesticks chart.
5. Renko
Renko means “bricks.” The Renko chart helps you to understand price movements. However, the difference between this chart and other charts is that if the price is within the chart range, the brick does not move. Also, this chart is not associated with time.
How to Read and Analyze a Cryptocurrency Price Chart?
A cryptocurrency price chart is a key tool that you can use as a trader to make better trading and investment decisions. Once you analyze price charts, you can gain valuable insights into price movements, market trends, and entry-exit points.
The following are the steps you must follow if you want to analyze a cryptocurrency price chart:
1. Understand Chart Basics
First, you have to understand the basics of analyzing crypto price charts. In general, price charts display historical price movements of crypto over a time period. Typically, they consist of a variety of elements, like indicators, candlesticks, and price bars.
In a price chart, the price bar shows the high and low prices as well as the opening/closing prices of cryptocurrencies. In some cases, you will see candlestick charts in place of price bars. A candlestick chart provides a better visual representation of price movements.
Apart from that, you also need to know how to use indicators like RSI, moving averages, MACD, etc. These will help you interpret price trends.
2. Identify Crucial Trends and Patterns
Generally, there are patterns that you need to look at as a trader when you analyze a price chart. These include:
Support and resistance levels: Price levels at which a particular crypto struggled to move past.
Trendlines: These are diagonal lines that show the direction of price movements.
Chart Patterns: These include head and shoulders, which provide you valuable insights into potential changes in trend or continuation.
3. Use Technical Indicators for Analysis
Technical indicators help you further analyze price charts. There are different types of technical indicators, and each of them serves unique purposes. This way, you can predict price movements better.
Here are some of the most common technical indicators you will use in price charts:
Moving averages: This helps to smooth our fluctuations in prices in crypto. Also, it helps to identify the direction of a trend.
MACD: This shows the relationship between two different moving averages. Moreover, you can find the status of trend reversals.
Relative Strength Index (RSI) and Stochastic Oscillator: These help you to determine the status of overbuying or overselling a cryptocurrency.
Create Your Trading Strategy Now
Once you master the basics of a cryptocurrency price chart, you need to develop a trading strategy in terms of your analysis. Here, you need to outline the rules/conditions of entry/exit in your trading. Also, you have to consider risk management, position sizing, and profit targets.
Do you want to suggest some tips on how to read price charts? Please share your tips in the comments section below.
