When getting started in the digital currency markets, one of the most important steps you need to take as a trader is to learn how to read cryptocurrency charts.
In fact, live cryptocurrency charts are a key part of any trading strategy and are useful for novice traders as well as more experienced professionals in the market.
Developing the necessary skills to get the most out of this technical analysis tool is undoubtedly an art form that requires patience and dedication.
In this article, we will go deeper into reading cryptocurrency charts, giving you an overview of their components, the types of charts available, and how you can get the most out of them in your day-to-day trading.
What is a Cryptocurrency Chart?
A live cryptocurrency chart like bitcoin, meme token and hokkaido inu is a graphical representation of patterns related to historical prices, volumes, and time frames.
These charts can be modified and set to specific time frames, helping to gather specific information or data relevant to an investor’s trading strategy.
Traders who incorporate reading cryptocurrency charts into their routine have the potential to make better-informed trading decisions, just as technical charts help traders choose commodities.
Types of Cryptocurrency Charts
Currently, there are several types of live cryptocurrency charts available to cryptocurrency traders. The main three are line charts, bar charts, and candlestick charts.
Below we will take a closer look at each of these widely used chart types in order to better understand what they are and how to use them.
line Graphs
A line chart is a 2D chart that displays the closing price as a single entry at different points on the time scale.
This type of chart was the method originally used in the financial markets due to its simplicity since it is limited to representing the price in a single continuous line.
It reduces price volatility throughout the day and gives a clear overview of the daily closing rate as it only shows the closing price of an asset.
The main advantage of a line chart is that it is easy to use and understand, which means it is suitable for traders of all backgrounds and experience levels.
Bar Charts
Bar charts are also popular with cryptocurrency traders, but unlike line charts, they represent the opening, high, low, and closing prices for a specific time period.
On these charts, price is plotted on the vertical axis and time is plotted on the horizontal axis. Most one-year charts use one-day bars.
They are also known as range bar charts, as each new bar is based on price movement, rather than units of time such as hours or days.
The range corresponds to the difference between the highest and lowest price of a bar.
Candlestick Charts
A candlestick chart is in many ways similar to a bar chart in that it plots high, low, opening, and closing prices, but it is much more visually expressive.
This type of chart indicates whether and to what extent price movement over a given time period is positive or negative.
A candle is made up of the body and the wick. The opening price and the closing price is represented by the body of the candle. The top wick shows the highest price and the bottom wick shows the lowest price.
Candlestick charts provide much clearer information about price trends and volatility than bar charts, and the shape and color of candlesticks can offer clues to possible future market movements.
Support and Resistance Levels
When reading cryptocurrency charts, the use of support and resistance levels can make things easier for traders.
Support levels are defined as price points during price pullbacks that indicate where the cryptocurrency is expected to stop, due to increased buying interest at a particular level.
Resistance levels, on the other hand, are price points that represent concentrated selling interest and, like support levels, can be identified by trend lines.
For uptrends, a line is drawn using the lowest and next lowest point in a specific time frame of a cryptocurrency, and levels that touch this trendline are considered to support.
Conversely, when the price is trending down, traders should pay close attention to a series of falling peaks and should map this drop by connecting them with a trend line.
Moving Averages
A moving average is a simple yet extremely useful technical analysis tool that levels price data by creating an average price that is constantly updated.
Investors frequently use them to identify trend direction, as well as to chart support and resistance levels.
Moving averages can be constructed in different ways and are useful because they simplify the content of a chart by removing irrelevant underlying trends or periods of short-term volatility that have little influence on the overall trend.
Also Read About: What is Decentralized Finance (DeFi)?
Conclusion
There are various technical analysis tools such as charts that a cryptocurrency trader can use appropriately to drive their trading strategy.
While most chart types are easy to understand, it helps to fully understand their features and what they can provide in terms of data and insights.
Cryptocurrency markets are like an asset class and require proper study. Charts like the ones mentioned above give an indication of what has happened in the past, so they should be used correctly to minimize losses on future trades.