How To Read Crypto Charts: A Complete Beginner’s Guide

How To Read Crypto Charts

What is the Dow Theory

Dow Theory, at its most basic level, describes market movements and how they normally act. It generates signals that can be utilised to determine the main market trend. Trading decisions are then based on the basic market trend.

The Dow Theory can be applied to the cryptocurrency market as well.

According to the Dow Theory, the market takes everything into account when determining its price. All existing, historical, and upcoming details of the stock are reflected in the current asset pricing. This implies a market analyst may concentrate on the price of a coin rather than every single circumstance that influences its price.

Cryptocurrency markets follow a predictable pattern of ups and downs. It is feasible to predict market behaviour by being able to discern market patterns.

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6 Tenets of Dow Theory

• The market moves in three directions.
• There are three stages to the key market trends.
• As soon as new information becomes available, it is incorporated into the market.
• The averages of the stock market must agree.
• The volume confirms trends.
• Trends exist until they are proven to be over.

1. The market moves in three directions

• The main movement of a market is referred to as such. It is a huge market trend that can continue anywhere from a year to several years. The primary trend might be either bullish or bearish.
• The medium swing refers to a market’s secondary or intermediate movement. This is what occurs during a medium period of time, ranging from ten days to three months. The principal price change is used to measure trends in the medium swing.
• The term “short swing” refers to a market’s modest change. The term “short swing” refers to market speculation that lasts only a few days.

A daily minor movement in a negative secondary reaction in a bullish primary movement, for example, can occur at the same time.

2. There are three stages to the key market trends

1. The accumulation phase: The accumulation phase is when educated investors begin buying or selling the coin in opposition to the market’s common impression.
2. The public participation phase: The public involvement phase, often referred to as the absorption phase, occurs when the rest of the market begins to follow experienced investors.
3. The distribution phase: The distribution phase takes place after the absorption phase’s conjecture. Investors who are well-versed in the market begin to redistribute their assets.

3. As soon as new information becomes available, it is incorporated into the market

The asset’s price adjusts to reflect any new information. Asset prices are an accurate reflection of market players’ aspirations, anxieties, and expectations. Interest rate fluctuations, profit estimates, sales projections, significant elections, product developments, and other factors are all factored into the market price.

4. The averages of the stock market must agree

If two companies or industries are causally related, growth in one should result in an increase in the other. If one company’s performance improves while the other deteriorates, it could indicate that a market trend is about to reverse.

5. The volume confirms trends

During an advance, the number of shares stranded should rise in tandem with the price. During a decline, the volume should fall in lockstep with the price.

6. Trends exist until they are proven to be over

Despite “market noise,” the market is still trending. It’s not easy to find concrete evidence of a trend’s reversal.

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What is Technical Analysis

Technical analysis is a tool or strategy for predicting the likely future price movement of a cryptocurrency pair. The better the technical analysis, the more accurate the market reading.

You’ll need to look at crypto charts to undertake technical analysis. The parts that follow describe the features of crypto charts that you should consider.

Different Time Frames for Crypto Charts

Different time frames on a bitcoin price chart can provide you with different information. For bitcoin charts, you may choose from a variety of time frames. 15-minute charts, hourly charts, 4-hour charts, and 1-day charts are all used by some traders.

You would look at the short period charts if you wanted to open and close your trade in a single day. Long period charts are what you’d look at if you’re a long-term investor.

Cryptocurrency Market Capital

This formula is used to calculate a coin’s market cap:
Market Cap= Total Circulating Supply* Price of each coin.

• In other words, it is determined by the circulating supply of the coin and the price of each coin.
• The market capitalization of a cryptocurrency is an excellent predictor of its stability.
• The total circulating supply of a cryptocurrency is multiplied by the price of each coin to determine its market cap.
• The coin will be more stable if its market cap remains consistent.

The Japanese Candlestick Charts

The Japanese candlestick chart is the most popular cryptocurrency graph.

On a candlestick chart, each candle represents the asset’s price movement over a period of time. They have the same logic and are shaped like box-and-whisker charts.

The highest price the item obtained during the time span is shown by the top whisker (also known as a shadow). The difference between the asset’s opening and closing prices during the time interval is shown in the box (sometimes called the body).

The lowest price the item reached throughout the time span is indicated by the bottom whisker (also known as a shadow).

Candlesticks are divided into two categories:

1. Bullish
2. Bearish

1. Bullish:- Green represents a bullish candlestick. The closing price of an asset in a bullish candlestick is higher than the asset’s opening price.

2. Bearish:- Red will be used to indicate a bearish candlestick. The initial price of a bearish candlestick will be greater than the asset’s closing price.

Candlesticks, if read correctly, may clearly show you where the market has turned. They can assist you in identifying various trends that may aid in predicting how the market will behave.

Relative Strength Index

The Relative Strength Index (RSI) is a technical indicator that shows how strong and fast a cryptocurrency’s market price is. It is a comparison of a cryptocurrency’s current price to its previous performance.

Remember that the RSI varies from 0 to 100 while examining the RSI graph of a certain currency. In general, when a coin’s RSI approaches or crosses 70, it is deemed overbought or overvalued. If the RSI approaches 30, on the other hand, the coin is undervalued.

Support and Resistance

Support and resistance are predetermined levels of an asset’s price at which the trend tends to reverse in technical analysis. Multiple price touches without a breakthrough of the level indicate these levels. Traders frequently buy at support levels and sell at resistance levels. Let’s take a look at the Bitfinex daily BTC/USD chart to see how support and resistance levels function.

Support

The price of an asset tends to stop declining at a support level. Take a look at the graph below.

If you look closely, you’ll notice that we’ve chosen the $3,800 line as a support level. The reason we chose this is because the market fell to that level three times (as indicated by the red box) before rising again.

This can occur for a variety of reasons, which we will address later. To give you a quick overview of how the dynamics work, the sellers (or bears) sell the asset and drive down the price. When the price drops to a specific point, in this case $3,800, the buyers rush back in and “bounce” the asset’s price off that point.

If the sellers gain enough traction to break through this level, the price will continue to fall until it reaches another level of support. For example, look at the graph below:

BTC/USD price broke through the first support level (red line) and bounced off a second support level (pink line). The red line has suddenly turned into a barrier.

Resistance

The price of an asset reaches a resistance level when it stops rising. Take a look at the graph below.

The amount of resistance is the polar opposite of the level of support. On the daily chart of BTC/USD, resistance was located at $4,250. As you can see, the chart intersects with the level four times before bouncing down. To demonstrate how it works, the buyers purchase the asset till the item’s price rises. The sellers, on the other hand, sell the item whenever price reaches $4,250.

If the buyers have enough impetus to break through $4,250, the price will continue to advance until it reaches another level of resistance. The $4,250 resistance level has now turned support as a result of the breach. Take a look at this:

BTC/USD broke through the $7,000 resistance (red line) and subsequently the $7,800 resistance.

Participant in the Market

The market participants set the levels of support and resistance. There are usually three sorts of players in a market:

• Long-term traders who are anticipating a price increase.
• Traders who are shorting a stock and waiting for it to decrease in price.
• Traders who are unsure of their options.

All three parties buy in when the asset’s price reaches the support level. Long traders are pleased with the market’s current status and may try to add to their position, while short investors purchase more to break even, and indecisive traders buy at the support level.

Market Emotions

The price chart is a graph that depicts the market players’ feelings. Long traders experience emotions such as greed or optimism when the price falls to the support level, whereas fear and pessimism are experienced when the price rises.

Support and resistance levels are a reflection of market moods. It’s critical to be able to read these levels on a bitcoin chart since they draw a lot of attention and build excitement. A great number of volume and trader are attracted to this attention.

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