Anyone who has made any kind of investment in cryptocurrencies knows how fast the charts of cryptocurrencies are constantly changing in real-time. The huge price volatility that this asset sees due to its known volatility may be breath-taking, but there are relatively few people who actually understand how to read cryptocurrency charts and even fewer. Really understand how to work based on charts, or how to turn signals from them into profits.
What is chart?
For those who are new to trading, crypto charts are a set of lines and candlestick patterns that show the historical price performance of cryptocurrencies. These can help you anticipate changes in market conditions and future trends, thereby helping you make better investment decisions.
It is a snapshot of historical and current price movements over a period of seconds to minutes, days, weeks, months and even years and beyond. Crypto charts can seem quite complicated to the untrained eye, so it is better to understand its fundamentals.
Cryptocurrency charts indicating trading pairs, periods and trading platforms. Generally, charts give information about the opening, closing, highest and lowest price touched during that time period. The date and price increase are shown at the bottom and side of the chart.
Depending on the chart, technical signals such as volume or moving averages will start appearing and move along with the opening and closing of each trading session.
japanese candlestick chart
The Japanese candlestick chart (see right in the second picture below) is the second most commonly used chart after the line chart. Analysts generally consider the Japanese candlestick the better because it also shows a lot of additional data.
Candles are generally seen in two colours, red and green.
When a candle is red in color, it means that the closing price of the time period under review was below the opening price. This means the price of that asset declined during that time.
When a candle turns green, it means that its closing price was higher than the opening. The picture below is demonstrating it:
For example, the opening, high level, lowest level and close of each candle can provide additional information. If the price goes beyond the opening or closing limits during the candle, a shadow or candle remains a “wick”.
The size, shape, duration and color of these candlesticks and the patterns they form give analysts, buyers and traders an idea of the future course of the price, allowing them to change their positions or take new positions based on probabilities. gets it.
The Japanese candlestick is capable of providing a lot of information from a single candle. However, when certain types of candles occur in a particular order, they can give an accurate prediction about future price movements.
These are broadly divided into two categories:
1. Bullish Reversal Pattern
2. Bearish Reversal Pattern
Following are some of the most important and influential Bullish Reversal Patterns.
hammer candle pattern
A “Bullish Hammer” is a reversal pattern that usually forms at the bottom of a declining trend. In this, the body of the candles indicates the striking part of the hammer, while their long bottom represents the handle of the wick hammer. A green hammer is more powerful than a red hammer, but as the example of bitcoin’s bottom in 2015 shows, a red hammer can also be a powerful signal in its own right.
This pattern shows how the sellers pushed the price down with full force, but the buyers also gave them a tough fight and eventually defeated them with buying power. For this pattern to be valid, it needs to be followed by a bullish trend.
Bullish Engulfing Candle Pattern
A Bullish Engulfing candle is a reversal pattern in which a green candle body completely swallows up the previous day’s candle body. This indicates that the sellers are tired and the buyers have jumped with more enthusiasm, due to which the trend is about to reverse. For example, the bullish engulfing in the chart below is a sign of an impending bullish trend.
morning star candle pattern
A Morning Star candle is formed when a doji is formed at the bottom followed by a downward trend first and then a strong bullish phase begins. The candle body in a doji is either very small or nonexistent and has small wicks or shadows. This shows a strong selling trend, where the sellers gradually start hesitating and then finally the trend reverses.
Bearish Reversal Pattern
Every bullish pattern is followed by a bearish pattern. Such patterns tend to emerge at the very top of a bullish trend before reversing. Some of the most common but strong bearish reversal patterns are as follows:
shooting star candle pattern
The Shooting Star candle pattern consists of one candle with a long shadow facing upwards. His body is small and there is either no shadow at the bottom or there is a small shadow. It emerges at the top of a bullish trend and then reverses the direction of the market.
This candle shows full strength from the buyers, which faces strong resistance and leaves a long upward shadow.
Bearish Engulfing Candle Pattern
A bearish engulfing pattern is formed when a green bullish candle body is completely swallowed by the next red candle. This could be a very important sign of a bearish reversal. For example, it was a sign of the bearish phase of bitcoin over the past three years.
evening star candle pattern
The evening star pattern appears at the top of a bullish trend and after a doji is formed, the next candle is a sharp one.
importance of technical analysis
In addition to simple or modern candlestick patterns on crypto charts, traders often draw trend lines across the top and bottom of candles or through support and resistance. Based on the shape and trend formed by these trend lines, the future price is predicted.
Some technical indicators and oscillators give traders specific information about market conditions like momentum, volatility, volume and many more. On most trading platforms, indicators are usually placed at the bottom of the chart so that they can be viewed in conjunction with a graph showing the price.
Popular chart patterns for technical analysis
Drawing trendlines on various crypto chart patterns to generate triangles or wedge-like shapes is very important to understand the movement of crypto prices.
After drawing a clear trend line touching several points, the closing price outside the trendline confirms that pattern. Chart patterns can help predict future sentiment direction and are an essential part of technical analysis in crypto trading.
head and shoulders
Head and Shoulders Patterns are reversal patterns that can emerge at the top or bottom of a trend. When they emerge at the bottom of a trend, they are known as inverted head and shoulders.
These trends clearly reflect buyer-seller turmoil, in which one side eventually dominates the other, resulting in a major push or resistance.
triangle
Triangles are patterns in which the price volatility decreases gradually over a specific time period, and finally, by drawing a trendline connecting the highest and lowest prices, a triangle is formed in which a trendline is either comes down or goes up.
wedges
Wedges represent a trend whose momentum is gradually decreasing, and finally a breakout occurs in the opposite direction from the previous trend. A sluggish market continues to move back and forth until a trend is formed in one direction.
Support and Resistance
Support and resistance levels are important components for understanding cryptocurrency price charts, and they are also very useful in technical analysis. Both of these can represent horizontal, diagonal, increasing, decreasing or even psychological levels.
Support
Support levels are areas on the exchange where most of the orders are placed that could result in buys, which creates enough strength in that area to trigger a reversal.
Support levels are areas where the same price action has been seen several times in the past, such as resistance. Often when support levels do not work, support is established at lower levels, as shown below.
resistance
Like support, resistance prevents the price from moving higher than below (as shown below). Sell orders create resistance. As shown above, after breaking the resistance (or support), the price sometimes comes back to test the old resistance as a new support area. Similarly, the support level is also there in the event of a breakdown.
technical indicator
Technical indicators are technical analysis tools that are used to gather additional data about market movements and the underlying movement of prices.
For example, MACD focuses on changes in momentum and trend, while RSI alerts traders to overbought and oversold conditions. When used in conjunction with both crypto candlestick charts and price patterns, this strategy can be extremely tempting.
Moving Average Convergence Divergence (MACD)
The MACD indicator, which is an abbreviation for Moving Average Convergence Divergence, is often seen as a lagging indicator. The MACD indicator uses two converging and diverging moving averages to indicate whether an asset is approaching an overbought or oversold position.
In addition, these two lines also represent momentum, and if they cross above or below it, the trend has shifted.
Relative Strength Index (RSI)
The Relative Strength Index, or RSI, is a trend strength indicator that also indicates whether an asset has reached an overbought or oversold position. Just as a cryptocurrency behaves differently from other assets, its RSI also reacts differently.
The RSI often signals that a decline is on the way.
For example, if an asset remains overbought for a long period of time, it is an indication that it is about to decline. However, one cannot rely on this indicator alone. This indicator is mostly used in conjunction with other indicators to determine the trader’s next move.
bollinger bands
Bollinger Bands are a moving average, and its two standard deviations are used to chart the volatility of a crypto asset.
A price passing through the mid-BB is a strong buy or sell signal.
Closing outside the bands is a sign of either a “move by the band” or a reversal. Mid-BB was the level when bitcoin started to decline during the 2017 bull run. This may indicate buying at a time of decline. If the price falls below the mid-BB, it is a sign of deepening of the selling environment.
Fibonacci Retracement and Extension Levels
Fibonacci Retracement and Extension Levels are specific mathematical ratios that are generated from the Fibonacci sequence.
Popular retracement levels to watch out for are 0.618 or 0.5 and 1.618, 2.698 and even above using the Fibonacci extension, which traders use to predict if a pullback will occur. If so, to what level can the prices go? Although the mechanism by which these levels act as support and resistance is not known, in practice these levels serve as extremely powerful indicators.
cryptocurrency market capitalization chart
Cryptocurrency market capitalization is the sum total of all digital asset trading platforms and the assets they represent. Apart from charting bitcoin, it is the king of cryptocurrencies technical analysis charts as it simultaneously paints a picture of the sentiment of the entire cryptocurrency market.
Bitcoin holds the majority of this market, while Ethereum is not far behind either. The top 10 cryptocurrencies by market capitalization are the most famous and valuable cryptocurrencies, even though their rankings are always changing.
Conclusion
When the ingredients discussed above are used together, traders benefit in the long run. Nevertheless, trading is overall a mixture of discipline, patience and awareness. While these indicators and patterns will help you plan your investments better, you also need to choose a safe and efficient trading platform like the popular crypto exchange WazirX, which gives you all the indicators mentioned above and much more in one go. Be able to provide space.
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