How To Read Your Crypto Trading Chart - Reading time: about 3 minutes
Trading charts are an indispensable weapon in the crypto trader’s armoury. They contain a great deal of data which allow traders to identify trends and track historical price movements. We need to understand the nuts and bolts of the trading chart before we can make any sort of technical analysis.
This article will provide all the information you need to get started on making sense of your crypto trading chart, starting from the ground up. From basic chart elements to price predictions, this article is key for making informed crypto trading decisions.
Elements of a Trading Chart
To read a trading chart, we first need to understand the different elements of the chart and how they are used to represent price movements. Here are the main features that a trading chart consists of:
A trading pair is a combination of two different cryptocurrencies that are traded against each other on an exchange (note that some tokens have more than one trading pair). The pair comes as the base currency—the token being traded which appears first in the quotation—and the quote currency that is used to determine the value of the base.
Using BTC/USDT as an example, BTC is the base currency while USDT is the quote currency.
The x-axis represents the time frame of the base currency being traded. This can be anything from a few minutes to several years, depending on the range selected.
The y-axis represents the quote price of the base currency being charted. The price is usually plotted from bottom to top on the y-axis.
- Lines, bars and candlesticks
Line charts show a simple line connecting the closing prices over a specific period of time while bar charts show the open, high, low, and closing prices for each period. Candlestick charts show the same information as bar charts, but the bars are replaced by “candlesticks” that show the range between the open and close prices. All of these different chart types help to provide a wealth of trading information at a glance, as shown on this trading dashboard.
- Moving averages
Traders use moving averages to identify long-term trends. They are calculated by taking the average price of a token over a certain time period, such as 50 days or 200 days, and then tracking a line graph over that period to smooth out the price action.
How Do I Read My Trading Chart?
Several different types of charts, including line, bar, and candlestick charts, can be used for different types of analysis. Here is how best to make sense of your trading chart:
Choose the chart that fits your needs
As already discussed, candlestick charts are widely used by crypto traders. They show the opening and closing prices, as well as the high and low prices, for a given time period. Each candlestick represents a specific time period, such as one day or one hour.
- Select the time frame
Trading charts can show data for different time frames, such as 1 minute, 5 minutes, 1 hour, or 1 day. Pick a time frame that is best suited to your analysis.
- Identify the trend
Look for a pattern in the price movements. If the price is generally moving upwards, it is in an uptrend, also known as a ‘bullish’ trend. If the price is generally moving downwards, it is in a downtrend, also referred to as a ‘bearish’ trend. If the price is moving sideways, it is referred to as a range-bound market. In order for price movement to be classified as range-bound, the token price needs to reach the same highs and lows at least three times, consecutively.
- Identify support and resistance levels
Support and resistance levels are price points at which the price tends to pause or reverse direction. These levels can be identified by looking for price patterns such as double tops or bottoms, head and shoulders, or trend lines.
- Use technical indicators
Technical indicators are calculations based on the price and/or volume of a token. They can be added to a chart to help identify or confirm trends, as well as identify potential buy and sell signals. Some common technical indicators include moving averages, relative strength index (RSI), and Bollinger bands.
Knowing how the various elements of a trading chart work together will help you to read the price action and identify any patterns or trends that are developing. You can also use technical indicators, such as moving averages, to further help you analyze the chart and make informed trading decisions.
It is important to note that trading charts are just one of the many tools that cryptocurrency traders use to analyze the market. It can be helpful to practice reading charts using historical data before you start trading in earnest. ProBit Global provides you with all the tools to dissect your trading chart so that you can make informed trading decisions when it comes to your crypto holdings.