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The Ultimate Guide to How To Read Crypto Charts

The Ultimate Guide to How To Read Crypto Charts

Bartering goods and services used to fill the shoes of paper currency in human history for years. Then came the precious metals such as gold, silver, and copper were fashioned into coins and placed in circulation.

China led the movement of paper currency, which quickly expanded across the Regions. Then, the 21st century introduced both mobile payments and virtual currency.

If you’ve ever paid for a purchase on a cell phone, tablet, or another mobile device, you’ve experienced mobile payments.

Virtual currencies, such as crypto, are still making their debut. They’re becoming a popular choice for both investing and daily use.

What Is Crypto?

Crypto is short for cryptocurrency. It’s a form of money built on a blockchain that is secured through a process known as cryptography. As is the case with the stock market, trading cryptocurrencies is now common among day traders, who look for low market prices to acquire these digital assets.

On the cryptocurrency market, you may encounter:

  • Bitcoin (BTC)
  • Ethereum
  • Ripple
  • Bitcoin cash
  • EOS (Electric Optical System)

What Is Cryptocurrency Used For?

You can use crypto in two main ways:

  1. To replace physical currency
  2. As an investment in the crypto market

Digital currency has its advantages. For example, it allows people to avoid bank charges. It removes the name from a transaction, allowing for anonymous payments.

Crypto also has disadvantages, such as not being backed by the government. It also doesn’t have legal protection like your credit card does. If you lose it, that’s it. There’s no turning back, whereas your money is insured with a bank account.

Another drawback to cryptocurrency is its volatility. It shares the behavior of stocks, fluctuating with the market trends. Hour to hour, the crypto price may increase or decrease. It depends heavily on market sentiment.

What Are Crypto Charts?

Just like investors watch for the price movement of assets on other financial markets, they do the same with a crypto asset’s price. The price charts are very similar — using a graph to track the highest price, lowest price, trading volume, and time interval.

This information is essential for investors. It acts as a basis for trading strategy, visually displaying trends of opportunity or loss over a specific time period. Information about the price of the asset that an investor owns can also help them predict future price movements.

Technical Analysis

Crypto charts are used for technical analysis by investors. Technical analysts use mathematical indicators of previous price data to become fortune-tellers and predict future events.

It’s like the saying, “you can’t teach an old dog new tricks.” Crypto values are sure to sway up and down on the market. However, historically, crypto is known to follow a pattern, reacting in specific ways to stimulants.

Is technical analysis 100% accurate? The answer is no. Predictions of how cryptocurrency will behave vary in their accuracy, and there’s no way to be right all the time.

What Are Candlestick Patterns in Crypto Trading?

Don’t let the flame burn out!

Then again, when a candle is opened and first lit, the flame sits high. This is the upper wick or shadow. Once it has aged for some time, the lower wick, or tail, shows that little wax is left to melt.

Are crypto charts similar to candlestick chart patterns? A little, yes, due to their original design by a Japanese businessman named Muneshisa Homma. Homma developed both technical analysis and Japanese candlestick charts in the 18th century.

Homma charted the prices of rice contracts as rice was traded on the exchange during his time. It has certainly evolved from charting agriculture to charting prices of stocks and cryptocurrency today.

These charts contain a wealth of information, indicating to investors when a unit is at a high or low and where the value is at the time of open or close.

Reading Candlestick Charts

Since the design resembles a candlestick, it is relatively simple to comprehend. Let’s draw it out for you and make reading the charts more second nature.

At the top, the chart has the high. At the bottom is the low. What is charted is the price between the open and close prices.

First, mark off the open price, then the close. The gap between them is shaded in, representing the candlestick.

The candlestick is more important than the wicks. The longer the body of the stick, the stronger the price trend is. This could be favorable or unfavorable, depending on its direction.

There are a few different color variations to watch for on candlestick charts:

  • Red and Black - Used when there is a price decrease between open and close (often called a bearish candlestick)
  • Green and White - Used when there is a price increase between open and close (often called a bullish candlestick)

Candlestick charts are displayed to investors in time intervals. This gives them flexibility, allowing them to drill down to the detail or see it high level over a span of time.

The most common time intervals used include:

  • 1-minute
  • 5-minute
  • 15-minute
  • 30-minute
  • 1-hour
  • 4-hour
  • Daily
  • Weekly
  • Monthly

The lesser timeframe shows more candle changes, giving investors an inside look at the behavior of the price changes.

Types of Candles and Patterns

Candles come in all different shapes, sizes, colors, and scents in the stores. The same goes for cryptocurrency; it varies in behavior.

Let’s list out the different types of candles:

  • Bullish vs. Bearish Candles - Aside from the different colors used to mark these trends, bullish candles build buying pressure, and bearish candles build selling pressure. Bullish candles represent prices on the price, and bearish candles are the opposite, showing the prices are declining.
  • Doji Candles - These have a small spread. The candle body is difficult to see at open; closing prices are exactly the same. A Doji is marked on the candlestick chart as a horizontal dash and could indicate a price reversal.
  • Marubuzu - Has little to no wick. Instead, the candle body dominates the chart.

Now, let’s dive deeper into some of the types of bullish and bearish candle patterns.

Bullish Candle Patterns

Bullish candle patterns include:

  • Inverted Hammer Pattern, also known as the Hanging Man or bullish reversal: This pattern occurs at the bottom of a downtrend, also known as a trend reversal. This pattern could indicate to investors that a price increase will happen.
  • Bullish Engulfing Pattern: Watch for a long green candlestick to appear after prices are heading downstream. This may indicate that they are getting ready to move upward again.

Bearish Candle Patterns

Bearish candle patterns include:

  • Shooting Star Pattern - Occurring after an uptrend, this bearish reversal pattern resembles the inverted hammer pattern. However, it foretells a falling price. It also serves to communicate to investors where supply and resistance reside.
  • Bearish Engulfing Pattern - Watch for a long red candle, followed by a small green candle. Chances are, prices are ready to decline because there are more sellers than buyers in the market.
  • Bearish Evening Star - How was the last candle on the chart documented? If it opens at a lower price than the previous day, it could indicate a price decrease is on its way, regardless of whether the previous day's candle was red or green.

Understanding Support and Resistance Levels

What do you think about when you hear the terms support and resistance? They play a vital role in the technical analysis of crypto charts, acting as barriers to price fluctuations.

Let’s break down what the two terms mean with crypto:

  • Support is when a price level downtrend is expected to stop temporarily, to pause. There is a hoard of buyers seeking to purchase the crypto at its lowest point.
  • Resistance is when a price level takes flight as sellers seek a gain on their investment. Here, you’ll find your short sales.

There are indicators of support and resistance embedded in the candlestick charts. Investors need to know what to look for.

Here are a few to consider:

  • Trendline indicator - Use a triangle formation to mark the chart's high points and low points. High points allude to resistance, and low points imply support.
  • Fibonacci Numbers - This indicator is more advanced than others available. It uses the Fibonacci retracement tool to assemble ratios for notable price points that guide the search for support or resistance.
  • Peaks and Valleys - Where are the highs, and where are the lows?
  • Moving Average - Find short-term and long-term support and resistance using various timeframes. It allows investors to follow historical trends.

The Bottom Line

The story of money continues to unfold and expand year after year. It’s remarkable that this all started by exchanging physical items, such as farmer crops or animal skin. Now, we have electronic currency that people no longer can touch.

Remember, buying low is the goal. Use cryptocurrency charts and other types of indicators that have been created as a guide to making investment decisions.

Virtual currencies are the new fad, and although they are becoming a popular choice, it’s not a bad idea to have a physical asset on hand. Gold is a solid choice, whether a gold coin or a gold bar.

Visit Acre Gold and start building your gold collection today. Affordable monthly subscription plans are available, bringing the beauty and timeless value of gold straight to your doorstep.

Sources:

What To Know About Cryptocurrency and Scams | Consumer Information

How to read Crypto charts? | Moneycontrol

The Invention of Paper Money | ThoughtCo

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