How many of those users who deal with crypto know how to read charts? Not many. But knowing how to read crypto charts is crucial to those who invest in any asset, and it becomes more important if one is dealing with such a volatile asset as cryptocurrency. If you know what all those bars and lines in a chart mean and how to forecast the possible asset’s price fluctuations based on it, you will be able to avoid heavy losses that send many small investors to the bottom.
A Candlestick Chart
Let’s have a look at a typical candlestick chart provided by Coinmarketcap.
Here, you can see the following information.
- The trading pair is BTC/USDT (a US dollar-pegged stablecoin. The base currency is Bitcoin, the quote currency is USDT.
- The current price of the base currency.
- The H and L values mean the highest and the lowest price of the asset for a 24-hour period.
- Open and close values.
Below the main chart that represents the price fluctuations, you can see a smaller chart representing the trading volume of the asset.
A Candlestick: Its Meaning and Components
Candlesticks show whether the price movement was positive or negative (bullish or bearish). Red candlesticks indicate the bearish movement while green candlesticks show the bullish price movement of the asset.
A candlestick consists of a body and wicks. The body is formed by the opening and closing price.
The top wick shows how high the asset price went during that time frame, and the bottom wick shows how low the asset price went. A long bottom wick might indicate that traders are purchasing the asset every time its price drops. A long top wick may signal that traders are taking their profits and it may trigger a sell-off of the asset.
A green candle with short wicks but a long body indicates a strong bullish sentiment, and a red candle with short wicks and a long body means that there is a strong bearish sentiment in the market.
Shooting Star
If you see a red candlestick with a long top wick, it means that many traders were selling, and even though the price went up, at the end of the trading session, it started dropping. That’s why the candlestick is red even though the price was moving up. It is a bearish pattern which means that the asset price is going to start a downward trend.
Inverted Hammer
This pattern looks like the Shooting Star pattern but inverted. It shows that the price is about to rebound. When you see such a pattern, consider purchasing the asset because its price is going to grow.
Head and Shoulders
The head and shoulders pattern is characterized by three peaks next to each other, with one peak being more prominent than the other two. It is a clear bearish pattern that indicates that a price drop is expected.
A bullish or inverted head and shoulders pattern indicates the possibility of a price increase.
Bullish and Bearish Wedges
Wedges give a wider understanding of where the market is moving. To get a wedge, trace one line to connect the price drops, and another line to connect the price peaks.
If these lines approach one another from left to right, you get a wedge.
A wedge with upward lines that almost create a triangle indicates that a bearish trend may be coming.
A wedge with downward lines that almost create a triangle pointed downwards may signal about the price swing in a positive direction.
Patterns Show Possibilities
Cryptocurrency is a relatively new phenomenon and its price fluctuations are not as predictable as, say, the price changes of traditional assets. That’s why it is important to do your own research and not rely on a single source of information when it comes to your money. There is no universal indicator that provides 100% correct information about the asset price changes. To understand the market, you need to study it thoroughly and consider multiple indicators if you want to get accurate results. Only if all indicators confirm a specific trend or a trend change, the possibility that it happens indeed is high.
The information provided in the post can serve as the basis to understand the market better and learn more elaborate techniques to forecast the price changes accurately.
Disclaimer
Please keep in mind that the above information is based exclusively on our observations and is provided for informational purposes only. It doesn’t constitute any kind of financial advice nor represents an official forecast. Cryptocurrency is a highly volatile asset, and you are investing in it at your own risk.
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