If you’ve been reading the financial news recently, you’ve probably seen news about cryptocurrencies. In the time of the Coronavirus pandemic, many people became interested in investing in Bitcoin and other cryptocurrencies.
A cryptocurrency chart is a graphical representation of the dynamics of a currency’s exchange rate, trading volume, capitalization levels, and other market indicators. By studying the chart, a trader can determine the best time to buy and sell coins. Careful analysis of the charts reveals trends and allows you to determine the best time to buy or sell stocks and maximize your profits.
Most trading strategies are based on the results of chart analysis, so it is important to know how to read cryptocurrency charts.
Types of cryptocurrency charts
There are several types of cryptocurrency charts. They are all used to varying degrees by both newcomers and advanced traders for predicting or speculating on the rise or fall of cryptocurrency prices.
Candlestick chart
Candlestick charts were invented by Japanese merchant Munehisa Homma and currently considered as the most popular method for displaying market data. The candlestick chart is the most commonly used chart in the cryptocurrency market. This chart displays digital values in the form of candles to show data. A candlestick consists of two main components: the wick and the body. The wick represents the high and low prices. These are the maximum and minimum prices at which the cryptocurrency traded during the period indicated by a single candle. As a rule, the highest price is on the top wick and the lowest is on the bottom wick.
The body of the candle is also another useful part of the candlestick. It shows the opening and closing prices of a specific period, represented by a single candle. When the opening price is higher than the closing price, the candlestick is displayed in red, which means that the total price has fallen. Accordingly, the open price is at the top of the body and the close price is at the bottom. Since it is not very convenient to look at the regular price chart, the time for drawing Japanese candlesticks is divided into periods, for example 10 minutes. Dividing into periods makes the overall picture clearer.
Heiken Ashi chart
Heiken Ashi is a charting method that can be used to predict future price movements. It is similar to traditional candlestick charts. However, unlike a traditional candlestick chart, the Heiken Ashi chart attempts to filter out some market noise to better identify trend movements in the market.
You can work with the Heiken Ashi chart in the same way as with a traditional candlestick chart. The only difference is that prices are smoother. This allows you to better identify the dominant trends in the market. If your goal is to identify longer and more consistent trends, using Heiken Ashi will help you achieve that goal. Detecting trends is one of the main functions of this style of charting. In this case, the trading strategy focuses on sustained trends. Small corrections and consolidations are barely noticeable on the chart.
An important difference between Japanese candlesticks from Heiken Ashi candlesticks is also that the closing and opening Heiken Ashi depends on the closing and opening above the center of the previous candle, rather than on the opening and closing of the analyzed candlestick. These differences distinguish Heiken Ashi candlesticks as more useful for identifying market trends.
Basic charts
Looking at line or histogram charts, some traders often make a decision to buy or sell a commodity long before they start trading. Essentially, a baseline is a value set on the X or Y axis of a chart. This value is set as the point at which the cryptocurrency can be sold or bought at a profit. This line can depend on several different numerical formulas. One of them is the use of percentiles to determine the value of the price range on the y-axis.
As another option, using a baseline cryptocurrency chart can track the fluctuations in the price of a commodity based on the value set by the chart author. In this case, you can understand how much the price of a commodity has changed compared to its original value.
Histograms are very useful for traders and cryptocurrency investors. They consist of vertical lines and small horizontal lines. The top point of the vertical line represents the highest price and the bottom point represents the lowest price for a particular period. The left line represents the opening price and the right line represents the closing price. The left line below the right line means that the price rose, and the line is colored green. The opposite ratio means that the price went down, so the line is colored red.
Renko Charts
Renko charts also came into the world of trading from Japan, which means “brick”. These candlesticks visually resemble small rectangular bricks which make up the price chart. The Renko chart demonstrates the movement of the price itself, helping to filter out market noise and determine the current trend, as well as identifying important support and resistance levels.
Renko charts are not time-linked, but are plotted only when the price changes. When the market is actively moving, more Renko charts appear, and fewer Renko candles appear when prices are moving sideways and volatility is decreasing. A new Renko chart is formed only if the price movement has exceeded a set threshold. If the price falls, however, black candles appear, each one reflecting a 10-point drop. Thus, the Renko chart shows the main direction of the price movement and compensates for small fluctuations.
The Renko chart represents an innovative method of presenting price movements on a price chart with a focus on identifying the main trend. For traders, it can be useful for identifying the direction of movement, sifting out market noise and finding important support and resistance levels.
Kagi Charts
Kagi charts are intended for studying and tracking price movements without setting a variable time required for price movement. Kagi charts are built from a series of vertical lines that depend on price behavior rather than time, unlike conventional charts such as line or candlestick charts. The first thing traders will notice on a Kagi chart is that the thickness of the lines varies with the price behavior of an asset. Sometimes the lines are thin and sometimes they are thick. The difference in the thickness and direction of the lines is the most important event on the Kagi chart, as it is the event that traders use to get a trading signal.
The structure of the chart is also very specific. The classic Kagi chart is based on period closing prices, but this parameter can be changed at the trader’s discretion. One of the tools of the Kagi chart is the specific reversal value function, which means that a horizontal line is formed only if the commodity price changes direction by a fixed value, percentage price change, the actual average spread used for technical analysis, or even the closing price.
To interpret the Kagi chart correctly, it is important to understand the important element that causes the line to change thickness. When the price of a commodity rises above the high or low of the previous line, the line becomes thicker at exactly the point where it rose above the low or high. This sudden change in thickness is often used to determine entry or exit points.
Online charts of cryptocurrency exchanges
Charts of cryptocurrency exchanges are one of the main components of technical analysis of the cryptocurrency market. Knowing the charts is a must if you want to trade in the coins on the exchange. It is also desirable to know the basic models, as well as to be able to analyze them, because charts can often be used to predict a particular event in the market with a high degree of probability. The WhiteBIT exchange clearly shows cryptocurrency prices, where you can monitor changes minute by minute.
How to read charts?
All trading charts contain a number of characteristics or are directly influenced by them. These values and tools can be used to determine a cryptocurrency’s bearish or bullish potential in the market and are extremely useful for understanding not only the cryptocurrency, but also the information that can be gleaned from looking at the chart.
Trading Volume
Trading volume is the total number of shares or units of a cryptocurrency sold in a single day or over a period of time. The number of cryptocurrency units sold can be used to determine supply and demand. A price spike is often accompanied by a large volume of purchases. This means that there are many people willing to buy the asset at the moment, which gives the trader more confidence that the asset will continue to grow.
Numerical indicators
When a commodity is traded in the market, it is sold at certain prices over a certain period of time. Certain prices are very important for understanding the volatility and trading patterns of a commodity. There are a total of 4 price points: Low, High, Close, and Open. As it is easy to guess, the high price is the minimum price of the quote, and the low price is the minimum price. Close is the closing price and open is the opening price.
Ticker
This is the official name of an asset and is indicated in parentheses. For example, the symbol for bitcoin is BTC and the symbol for Ethereum is ETH. Ticker symbols are important because prices often appear next to asset names.
Support line
The support line is an imaginary line that shows that the cryptocurrency will not fall below this line. This tool is useful when the market is unstable to see where the price may fall.
Resistance Line
This is an imaginary line that a trader draws to understand the maximum possible price of a cryptocurrency before the market becomes wary of buying the asset.
Trend Line
A trend line is a tool used by traders to determine the direction and degree of trend of any commodity. It is important to choose the right distance between the points. If they are too close together, the data obtained will not be sufficient to establish a correlation. If the points are too far apart, the analysis may not be correct. This is also a very useful tool for predicting future commodity activity.
Conclusion
Reading charts is a must for successful cryptocurrency trading. Reading a chart cannot guarantee that future price movements can be determined with 100% accuracy. Technical analysis is somewhat arbitrary, so it isn’t uncommon for traders to come to different conclusions based on the same chart. Charts help determine the right time to enter and exit the market, which in turn represents the best position for your type of trading and investing.
