How to Read Crypto Charts and Get the Most Out of Them

Written by Ethan M. Stone

Crypto charts, which show the price and volume history of cryptocurrencies over time, are one of the factors that people cite as making it difficult to get into cryptocurrency trading. At first, it can be difficult to figure out how to use these crypto cards, but the effort is worth it. Investors can turn raw price data into useful information by reading and understanding these charts. This makes it easier to spot trends, measure volatility and even find possible turning points. In this way, both traders and investors can make better choices about trading, investing or risk management in the crypto markets.

A brief overview of types of crypto cards

Each of the cards mentioned here can be studied and explained in great depth, but for the purposes of a quick overview of each type, they will be provided here.

First, line charts. These charts look like one might expect: a line extending from one side of a chart to the other with variation in height representing rising or falling prices. In the context of crypto, line charts connect closing prices over time, making them useful for quick, high-level views of general price direction and history. Line charts work well for understanding long-term trends, but since they tend to lack detail, they are not as useful for short-term trading.

Candlestick charts are among the most common in the crypto industry, especially for traders who use them for short-term analysis. In short, each time interval shows the open, high, low and close, all of which can provide a more complete picture of intra-period volatility and price action.

There are other, more advanced chart types such as OHLC charts, with some focusing more on price action than time-based intervals. Still, candlesticks and line charts remain the most common types for short-term and long-term use, respectively.

How candlestick charts capture sentiment and volatility

Because crypto markets can change quickly, candlestick charts are designed to show how factors such as market sentiment and volatility affect price movements over a given period of time.

Each candle on a chart consists of two parts: the body and the wick. The body shows the difference between the opening and closing price, while the wick shows extremes, i.e. the high and low during the period.

Candles also come in red or green; while red/”bearish” candles represent selling pressure as their close is smaller than their opening, green/”bullish” candles tend to represent buying pressure due to a larger close than opening.

Using candlestick charts to their full potential can be challenging and often requires a significant amount of time, patience and practice, but for many users these challenges are more than worth overcoming. By watching sequences of candles, i.e. how their bodies and wicks change over time, users can better identify patterns, volatility spikes and momentum shifts before they happen.

Chart Patterns and Technical Analysis

Much of the predictive power found in crypto charts stems from the patterns they reveal when properly read and interpreted. For example, Be(In) Crypto explains that chart patterns can be used to “identify trend reversals, trend continuations, and bullish or bearish momentum.”

Many chart patterns can be recognized by looking at factors such as support/resistance zones and breakouts, with different pattern types indicating different types of likely price behavior.

Look at the “hammer” candlestick pattern. This bullish pattern typically appears after a downtrend and indicates more buyers are entering. They look like green candlesticks with short bodies and long open wicks. On the other hand, a “hanging man” has a long lower pith and a small body. It appears at the top of an uptrend, which may mean the trend is about to turn bearish.

The data gathered from these patterns is mostly probabilistic and does not guarantee a specific outcome. As such, many traders combine chart patterns with signals such as moving averages and volume to inform more robust analysis.

Crypto charts and contextualizing market movements

Traders and investors need crypto cards because prices can fluctuate significantly, even over short periods of time. They can learn more about how withdrawals and price increases have occurred in the past by reviewing historical charts. They can then use this information to develop plans for the future.

Graphs are also a good way to establish meaningful reference points that are difficult to find in raw numbers. Measuring things like past support and resistance levels, average volatility ranges, and historical highs and lows can help you figure out how to manage your risk and when to trade.

The cryptocurrency market is notorious for traders and investors reacting to movements emotionally rather than logically, which contributes to the massive highs and lows commonly seen in the industry. Charts allow traders and investors to see movements through a more objective framework, giving them the space and environment they need to avoid the pitfalls that often come with price ups and downs.