The world of cryptocurrency can be irresistibly exciting when you are getting started. There are millions of catchwords to come to terms with, and once you've got your head around those, they hit you with the charts. The endless, never-ending charts. If you're looking forward to becoming a well-developed crypto trader, these charts can be a potent tool when used correctly.
WHAT IS A CRYPTO CHARTS?
A crypto chart can simply be seen as a visual tool that exhibits significant data in such a way that it will help understand cryptocurrency price movements.
These charts are used by cryptocurrency traders and devotees to help decide when to buy when to sell, and when to "hodl", a term commonly used in the context of Bitcoin and other cryptocurrencies that refers to a buy-and-hold strategy.
There are two main set-ups of price charts used: line charts and candlestick charts. Let's start with line charts.
HOW DO LINE CHARTS WORK?
Line charts are the most basic and straightforward type of crypto charts because they display the chronological price points of an asset.
For cryptocurrencies, these generally consist of the daily closing prices within a specific time frame. These time frames for viewing the charts can be measured at any length you want to see it. It might be in minutes or hours, days or weeks, months or even years. If you are an experienced trader, you'll likely want to emphasis on minutes and hours. If you're a HODLer looking for a longer-term investment, monthly will be more suitable.
It's also very crucial to be aware that line charts come in two diverse scales: linear and logarithmic. You can easily substitute one for the other by just swapping them. In the linear graph, the price scale is divided into equal pieces. In the log chart, the crypto price mostly ascended based on the per cent fluctuations, now imagine if two price changes vary in their respective values, yet both are equivalent in percentage, they will both be characterized by a similar vertical shift on the log scale. Both charts have their procedures.
With a linear chart, you can always determine the speed of price changes, while on the other hand, log charts make it easier to recognize trends.
A linear line chart
A logarithmic line chart
WHAT'S ON A CANDLESTICK CHART?
It's good to know that the candlestick chart is a more advanced trading tool containing extra useful information. It is popular among crypto traders for use in practical exploration.
Candlesticks show that sensation by visually representing the size of price moves with different colours. Crypto traders use the candlesticks to make trading decisions based on regularly occurring patterns that could forecast the short term direction of the price.
Candlesticks are created by upwards and downwards movements in the price. While these price movements can sometimes appear to be random, at other times, they form patterns that traders can use for analysis.
Candlestick chart
Just like a typical bar chart, a daily candlestick illustrates the market's open, high, low, and close price for the day. The candlestick has a wider part, which is known as the "real body."
This real body signifies the price range between the open and close of that day's trading. Anytime the entire body is filled in, this means that the close was lower than the open. If the entire body is empty, it means the close was higher than the open.
The rectangle is the gap indicator in the middle of the opening and closing balance for the coin during that period you are examining. Green candlesticks point out that the crypto value has risen, so while the closing price is at the top, the opening price is at the bottom. On the other hand, the Red (or pink) candlesticks specify that the crypto has decreased in price; thus, the opening price is at the top, and the closing price is at the bottom. Sometimes, you may have seen a sign that is kind of similar to a cross or plus character instead of a candlestick. This is basically referred to as a Doji, and it merely means that the opening and closing prices for that day were similar.
Let's assume a situation whereby the wick at the top of the candle is very short. The proposition is that the coin is booming as the highest recorded price for that day has been reached. On the other hand, if the wick at the top was long, it would demonstrate that, at some given point in the course of the day, the price of the coin has been increased, but people did not hesitate to sell it in order to make a profit. This would propose the automatic falling of the market. Simply put, traders desires are to buy the crypto at a lower price while having the feeling that it is now. Thus, transforming into significant future actions.
In opposition, if the wick underneath a candle is short, it confirms that traders are still marketing the coin. This increases the supply and at the same time, suggests the price is probably going to decrease furthermore. Nonetheless, if the wick at the bottom is quite long, then this shows that the price of the coin has been dished, and people have started purchasing it again, with the aim to get it at its lowest value. This can eventually lead to an upward movement on the next day. It can also be perceived in the hammer candlestick pattern (below). It signifies a short body with a little tail which can be seen at the bottom of the downward trend.
We can compare bar charts and candlestick charts because they both show the same information, just in a different way. It's just that Candlestick charts are more visual, due to the colour-coding of the price bars and thicker real bodies, which are better at highlighting the difference between the open and the close.
CONCLUSION
Understanding cryptocurrency charts is a vital skill that every trader needs should have. Hopefully, everything your read in this article will not only help you with your crypto analysis but also demonstrate that reading chart is not complex as it may look.