Staying Ahead of the Curve: How to Read Crypto Charts
In this guide, you will learn how to analyze chart patterns that are going to influence when and how you trade crypto.
Ok, so let’s look at what we are discussing here in more detail.
While there are a number of skeptics who will never invest, millions are getting their feet wet in cryptocurrency. The most successful learn how to read crypto charts. Along with an investment strategy, they can help you make money in the market.
Here’s what you need to know.
Consider Dow Theory
Dow theory gives crypto investors a way to start making a technical analysis of their investments. There are a few fundamental ideas to apply from this traditional stock theory when getting into crypto.
First, the market is going to take everything into consideration when it’s coming up with a price. Details are integrated into asset prices. The current pricing has everything to do with the present state, the history of the asset, as well as its future.
There are a lot of variables to consider in an investment. Knowledgeable investors know the history of anything they invest in. This includes not only historical pricing but regulations, those being considered via legislation, and how that could impact pricing based on other investments.
While pricing might seem random, it’s not. Like anything else in the world, price movements follow trends. Those trends might be short term, long term, or based on another condition that changes over time.
Market analysts are often focused on the price of a coin. This is useful in some respects but there are a lot more variables that produce a movement. When you can keep your eye on the other factors, you can stay a step ahead of the so-called experts.
History has a way of repeating itself and if you can predict market behavior, you can predict how traders will react. When you predict other traders’ actions, you can make a decision to earn a solid return.
Consider Technical Analysis
Briefly, technical analysis is a tool to predict the future of a currency pair. If you know that two coins tend to move together, then you can stay ahead of the curve.
Methods that predict the movement of a cryptocurrency pair are a lot like methods used in traditional stock trading. It takes creative processing and a dynamic understanding of markets but once you come up with a method it offers a better perspective.
Finding the method that offers you the deepest perspective possible doesn’t have to feel complicated. In most cases, reading through a technical analysis can slow things down and focus your attention as a trader.
Time Frames matter
When technical analysts look at price charts, they think about time. They usually break these charts down in 15-minute increments, hourly changes, 4-hour changes, or 1-day increments. It varies widely and depends on the individual trader’s trading style.
As a technical analyst examines their price chart, they’re going to use these preferences to help them determine how they want to react to market changes.
Some traders prefer to make intra-day trades. These traders open or close their positions within the course of a day. These traders will look at short timeframes like hourly or 15-minute updates. Some will go so far as to look at the thing in just 5-minute increments.
Long-term holders want to ride out the small changes and see how they can reach over a longer period of time. While they might like hourly or 4-hour charts, some will take a much broader view of things. They might want to look at a weekly chart to determine what to do next.
Think About Market Caps
Market caps are the fundamental reality of how big a coin could grow. It’s the total number of coins out there multiplied by the price of each coin.
If there are 1,000 coins of a certain type in circulation, each worth $10, the market cap is then $10,000. This puts a limit of how much you could make trading each coin. It also changes how you’ll view currency pairs.
For example, if one coin has a market cap of $1 million and another has a cap of $1,000, it’s going to cost you less to buy into the second coin. However, if you see massive growth in the first coin, it’s going to trickle down in only a small proportion to the smaller coin.
Prices might double or even triple but if you start with a penny, you’re going to struggle to get to a dime.
The market cap shows the stability of a coin. If the market cap stays stable for a month or two, you know that it’s a safe coin to bet on. You might not see overnight growth, but you’ll also be able to rest assured that you’re not going to lose your shirt.
One of the most popular types of charts to use is a Japanese candlestick chart. They have red and green candlesticks resting one after another. Each candle shows the price movement of the asset during your interval or the specific time that you’ve set.
The candles show your opening price, the lowest price, the highest price, and the closing price within a specified period of time. Along with the candles, you also see shadows that stick out from them. Shadows show you how high or how low those prices have gone over time.
A green candlestick is going to have an upper shadow with the closing price. The lower shadow and the opening price will be indicated below. Red candlesticks show you the inverse.
They show you exactly where a market is turning and can help you see patterns. These help you make predictions on market reactions.
Learning How to Read Crypto Charts Takes Patience
You’re going to have to leave yourself some room to make mistakes when learning how to read crypto charts.
Check out our guide to learn about our cutting edge system for investors.