Top Tools To Read Cryptocurrency Charts For Successful Trading

The crypto boom is already creating waves across the global economy and almost everyone now wants to jump in and enjoy the current as it flows towards growth. But as easy as it may sound, investing in crypto can be a pretty confusing task, especially if you are just following trends with ZERO ideas as to what they mean. Reading cryptocurrency charts and market analysis no cakewalk, especially for investors who have just dipped their toes into the water. We can assure you - it will be quite daunting for beginners to learn crypto technical analysis and all the other jargons that go with it.

So, to take a bit of the load off your already boggled mind, we are here with the top tools that you should use to read cryptocurrency charts for successful trading. Let's begin this journey by understanding all about crypto chart analysis.

Understanding a Cryptocurrency Market Chart

What is a chart?

Simply stating, cryptocurrency live charts are like other technical trading charts that assist traders to select stock for making better investment decisions while dealing with cryptos. Cryptocurrency charts are a graphical representation that helps a trader to look into different trade trends of volume, historical price as well as time intervals. On the basis of past price movements of digital currency, the chart patterns are formed and these patterns are then studied to mark investment opportunities.

Why is analysing a cryptocurrency market chart important?

Investing in the stock market requires knowledge and vigilance so as to earn profits rather than losses. The study of the movement of prices and patterns in stock trade is termed crypto chart analysis. This task plays a very vital role as by the careful study of security’s past price movement - with the help of charts and indicators; future price range of the stock can be forecasted. And hence, it helps investors and traders in making informed investment decisions and also in taking calculated risks. In other words, it can be said that analysing the chart can assist the traders not only in picking the stock but also in deciding when to buy or sell a coin to close the deal profitably.

What are the most common types of cryptocurrency analysis charts?

In order to examine a crypto stock, there are many ways to organize charts. Irrespective of the type of chart used by a trader for graphical representation of the price, a crypto chart analysis helps the trader in identifying:

·        Trends of the market

·        Reversal points at market tops and bottoms

·        Periods of consolidation

The most common types are as follows:

Line charts:

For mapping continuous data sets over a period of time, line charts are excellent options. Line charts are used to show where the prices have been in the past. It provides the best context for understanding what is happening and how to plan wisely for the future. Generally, line charts are used to exhibit the trend of a variable over a period of time. The values of the data are plotted as points that are linked using a line segment. One can see the trend (pattern) of any variable over a period of time, for example, the movement of gold prices in the last five years, share prices, earnings per share and many more by using a line chart.

Candlestick charts:

Candlestick charts represent the price into two main parts - the body and the wick. These parts are connected in a style that appears like a candle. The wick is represented by a thin line, both at the top as well as the bottom of the body which shows the highest and lowest prices traded over the time frame. And in addition to it, the body of the candlestick chart represents the opening and the closing price of the security. In case if the open price is lower than the closing price, the colour of the body/ bar is generally green, depending on the colour setting of your software. It generally shows a bullish market trend. On the contrary, if the closing price is lower than the opening price, then the candle made will be generally read. Again, it depends on the colour setting of your software. It shows a bearish pattern.

What are the different types of chart patterns?

Head and shoulders:

The head and shoulder pattern is formed with three peaks, where the outer two peaks are close in height and the middle is highest. The first and third peaks are the shoulders, and the second peak forms the head. The line connecting the troughs is called the neckline. Basically, in crypto chart analysis, a head and shoulder pattern exhibits the formation that predicts a bullish to a bearish trend reversal. This pattern is considered to be one of the most reliable markers of a trend reversal. It is one of the top patterns that, with varying degrees of accuracy, signal that an upward trend is about to end and vice versa.

• Following long bullish trends, the price rises to a peak and then consequently decline to form a trough.

• The price rises once more to form a second high, considerably above the initial peak and declines for a second time.

• The price grows for the third time, but only to the point of the first peak, before declining once more.

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Triangles

One of the most commonly used technical analysis tools is the triangle pattern. In cryptocurrency charts, triangle patterns are important as they indicate the continuation of a bearish or bullish market. There are three types of triangle patterns to watch out for:

·   Ascending triangle pattern: This is a bullish formation that looks forward to an upside breakout.

·   Descending triangle pattern: This pattern is a bearish formation that indicates a downside breakout.

·   Symmetrical triangles: In this pattern, prices grow but at a reduced rate and may subsequently result in a breakout in either direction - up or down.

Wedges

A wedge is a chart pattern in cryptocurrency that analysts use while depicting major price movements and trends in the market. A wedge portrays a general attitude of market trends. The point of reversal that shapes a convergence for price trends gives the formation of a wedge. It can be used for the following inferences:

• Investors are able to make out rational market insights through crypto chart analysis depicted on a wedge.

• Bearish and bullish market trends are identified through a wedge.

• Upper and lower trend lines are essential to investors, particularly when making investment decisions.

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Support and resistance

To analyse cryptocurrency market charts, one needs to understand the support and resistance levels. A support level is a barrier to price decline whereas a resistance level is a barrier to price advancement. Although the support and resistance levels are obstructions for price movements but stock prices do break these barriers. In crypto chart analysis, support and resistance levels are used to identify price points where the probabilities favour a pause or reversal of an existing trend. Support arises where a downtrend is expected to stop due to a concentration of demand. Resistance occurs where an uptrend is expected to recess provisionally, because of the concentration of supply. 

Top Tools for technical analysis of cryptocurrency charts

Now that we know what charts are and how important they can be in making investment decisions, we must explore the tools that you will need to gain useful inferences from them. Let’s get familiar:

#1: Trend Lines

On crypto charts, lines are drawn just over or under the pivot highs or lows in order to indicate that the price is following a particular direction. These lines exist, based on the usual placement of buy or sell orders by traders or investors, and the increasing or decreasing of stop-loss levels, or where normal profit-taking may happen. A trend line normally is required to have several touches to be considered valid, and traders are suggested to observe for a break and close above or below trend lines, prior to taking any action. These trendlines also signify useful guides for where a cryptocurrency trader or investor may be interested in entering or exiting a position so as to maximize profits and minimize risk.

#2: Moving Averages

In cryptocurrency market charts, moving averages are used as an indicator that represents the average price of an asset over a period of time. Moving averages can be short term as well as long term, charted across daily, weekly, monthly or in fact for a longer time frame. Traders and investors typically use moving averages, not just to calculate the support or resistance levels but also to understand whether the trend is going to continue or not. When short-term moving averages goes above or below a longer-term moving average, the event is called either a golden cross or death cross, named for the resultant price action that usually follows. Death crosses are down-trending and indicate that the asset will soon become bearish, whereas golden crosses are up-trending and signify the wealth that investors can reap from the trend that follows such an occurrence.

#3: Trading Volume

Trading volume is used to determine interest in an asset. Volume usually precedes price actions, and a smart investor keeps a keen eye on it to spot trend changes in the price of an asset by observing trading volume. Moreover, trading volume is also applied to confirm the validity of a movement. Most of the time, it also happens that the price of an asset breaks down or up without volume support, which hints that the involved buyers and sellers are not confident in an actionable position. On the other hand, if the same movement takes place with strong volume, chances are much higher for the move to be valid and not result in a bogus call.

Conclusion

In conclusion, it can be said that the purpose of investing in the cryptocurrency market is to book profits and to fulfil this purpose, it is essential to learn crypto chart analysis. It is vital to do due diligence before making any buying, selling or holding decisions. This research may help you to reduce potential losses and also help you to get higher returns. And if you are looking to get into the analysis of crypto charts in India, the information above should put you on track.