Reading charts in crypto trading is a practical skill that traders need to acquire for successful crypto trading, especially in today’s challenging marketplace. Most of the analysis tools available for crypto traders act as a valuable weapon, however, you need to use them appropriately to gain profits. For example, the candlestick charts can make you a better trader if you can use them as a complementary analysis tool for research. Likewise, there are many crypto analysis tools but we have selected a few listed below which are most commonly employed by cryptocurrency traders.
What is a cryptocurrency chart?
Crypto charts can be referred to as a set of line and candlestick pattern which reflects the historical performance of a cryptocurrency market. The crypto charts help traders in forecasting future changes or trends according to market circumstances which allows them to make smart investment decisions. It can be said that charts are a form of market snapshot comprising historical and current price movement occurring within a specified time that may range from months to years or seconds hours or more.
What do you mean by candlestick pattern?
A Candlestick pattern is a form of cryptocurrency chart that typically consist of bullish and bearish patterns. While a bullish movement indicates that the price movement of a particular cryptocurrency is positive or moving upwards, it signals traders to buy the token for making profits after selling them in future. The inverse of it happens when there is a bearish movement in the market and signals traders to sell the token when the price is moving downward to avoid losses. This is, however, a typical case but traders may choose to trade in the opposite way i.e., accumulate when the price drops and sell later when the price increases.
Popular chart and candle pattern for crypto market analysis
Japanese Candlestick chart
The Japanese candlestick chart is one of the most commonly used crypto line charts which analysts use to analyze various forms of data. Japanese candlestick usually follows two colours, green and red. When the candle is red, it means that the closing price was lower than the opening price within a given timeframe. It signifies that the asset’s price has decreased within the mentioned time. Alternatively, the green colour candlestick means that the closing price was more than the asset’s opening price, indicating that the asset price has soared within the timeframe.
The shape, size, colour and duration of the candlesticks alongside their pattern can help crypto analysts and traders get an insight into the future price action. With such insights, they can make changes or acquire new positions of their assets. Overall, Japanese candlesticks can provide traders with a great deal of information even with a single candle. Furthermore, when they are paired in a specific sequence, the prediction becomes more accurate.
Bullish Reversal patterns
Bullish reversal patterns and bearish reversal patterns are the two most common types of patterns that develop on the charts. For example, a bullish reversal pattern known as a Hammer Candle Pattern indicates that a stock is about to reach the bottom of a downturn. The shorter body of the candle symbolises the hammer’s head, and the longer wick indicating sellers forcing the prices down throughout a trading session followed by intense buying pressure, are both indicators of bearish market conditions. The rising trend has to be attentively monitored for a few days to confirm it, and the reversal needs to be supported by an increase in trading volume.
Shooting Star candlestick pattern
A bearish candlestick pattern is known as the shooting star candlestick that typically appears at the peak of an upward price trend. This candlestick has a long wick that rises upward from a small body that is located at the bottom. Its red colour denotes that even if the price reached higher values along the road, it slightly declined towards the end of the trading session. Analysts take this as a signal that a sell-down is about to occur and that there is resistance to future price growth. In other words, many traders opt to sell now rather than wait for prices to fall.
Inverted Hammer candlestick pattern
The inverted Hammer Candlestick pattern looks like a shooting star but is bullish as it is indicated by green colour candles. The candle shows that the price have surged at the end of a trading session after it had been high all the way. When the candlestick follows a downtrend after the initial pattern, the market sign is considered good seeing that the market price will rebound. This is because it reveals that there is a buying demand at that particular moment which means that the asset price may rise higher.
Morning Star candlestick pattern
This popular candlestick pattern occurs when you see a Doji appearing at the bottom in a movement followed by a strong upward trend. A Doji candle has a very smaller number of wicks or shadows. This indicates a strong downward surge by sellers that may follow a period of hesitation before the trend is reversed.
What do you mean by Head and Shoulders in cryptocurrency charts?
Once you zoom out of the candlestick pattern and see the general crypto charts, you can find more patterns and categories. Head and shoulders are one pattern which is categorized by 3 valleys or peaks which show up next to one another. In this kind of candlestick pattern, the second valley or peak looks like a head overshadowing its neighbour on both sides of the shoulder which gives this pattern its moniker. When you see the head and shoulder pattern on the left side of the chart in green colour, it indicates a bullish trend and that the crypto price will see an upswing. Alternatively, a bearish head and shoulders will be red on the right revealing a downward market trend.
What are wedges in crypto charts?
Just like head and shoulders, you can see wedges in cryptocurrency charts that includes a wider viewpoint. Wedges can be traced in charts by drawing a line that connects the lower point indicating a price movement over a period of time and another line that goes through the peak price. If the two lines meet each other from left to right, a wedge is formed.
A bullish wedge has two lines having downward slopes which somewhat looks like a triangle pointing downwards. This pattern reveals that the upward and downward market trend is stabilizing near the bottom and the asset price may move in a positive direction. A bearish wedge will show the two lines with upward slopes meeting at the high point and may precede a peak which results in a subsequent sell-off.