How to Read Candlesticks on a Crypto Chart: A Beginners Guide

how to read crypto charts

Let’s dive into some of the most useful candlestick chart patterns to know. Another candlestick type that is quite similar to a doji is a spinning top. Like a doji, this candlestick has a long wick relative to its short body in the middle, resembling a spinning top. Unlike a doji, its body is small but still visible, indicating a slight change in price between opening and closing times, with wide fluctuations in between. And when bands tighten around the average points (shown below), you’re in a period of low volatility – you can typically expect smaller price movements in these periods.

  1. A candlestick is the main price indicator in most crypto price charts.
  2. It’s simply not sustainable for an asset to consistently rise or drop 30% to 40% day over day for an extended period of time.
  3. Because it isn’t graphing individual price points, but the averages of two or more, momentary spikes or drops in price are smoothed out by the other values that are being averaged.
  4. This is a kind of candlestick that has a pronounced body and no wick; hence, its moniker.

When they cross, the trend is thought to be reversing, and when they diverge or spread open, the trend is thought to have enough momentum to continue in the current direction. A resistance line is drawn through several points where the price peaks, buyers stop buying, and sellers jump in, driving the price down. They can be used to try to gauge where the next bull trend may come to an end. As such, all sorts of markets use these types of charts, which leads us to crypto. This combination can possibly be interpreted as a bullish signal, which precedes and suggests the potential for more price increases. This pattern can be interpreted as a signal that the price may potentially be resistant to further increases, and as a result, slide down moving forward.

Asset Class

TradingView is a widely popular online charting platform traders use across various markets, including cryptocurrencies. It has multiple technical analysis tools, indicators, drawing tools, and customisable charting features. Many of the most popular crypto exchanges have integrated TradingView directly on their platforms, free for users. It’s my favourite platform as it provides access to real-time data and allows users to share and collaborate on trading ideas.

how to read crypto charts

The availability of information differs between cryptocurrency trading and stock trading. Stock markets provide comprehensive financial disclosures, company reports, and analyst coverage, allowing investors to make informed decisions. Cryptocurrencies, however, often have limited publicly available information. Traders often rely on market sentiment, tokenomics, project developments, technical analysis and crypto community discussions to assess their value.

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During these events, the mass market decides whether prices will go up or down and buy and sell accordingly. Fundamental analysis is effective when it forms part of your trading plan. It can become a powerful component towards choosing the best crypto trading opportunities. Sometimes, price spikes appear random, but if you dig deeper, you may find something like a tweet from Elon Musk or another influencer. If you have correctly analysed the charts and feel confident about your choice, letting the trade run often generates more profits than exiting manually. In the latter, traders may leave money on the table and regret interfering with the trade.

Now let’s discuss all these factors in detail and observe how crucial these are to consider when evaluating an opinion regarding a cryptocurrency. The sum of the world’s hope, fear, projection, and history are all taken into account. The below image shows the upper line (resistance) and the lower line (support). The structure of a crypto trade typically involves several components. Financial Conduct Authority (FCA) highly regulate the stock market. These organisations ensure fair trading practices and investor protection.

The use of candlesticks can be a good starting point in your crypto trading journey, as they can help you assess the potential of price changes. Each candlestick pattern tells a short-term story of market sentiment and decisions made. As candlesticks are the easiest indicators to look for, they can unlock more insights into price action, especially when combined with other technical analysis indicators. Understanding crypto candlestick charts takes some time, but the effort is well worth it for crypto traders who want to make informed decisions about buying, selling, or holding an asset. Whether you are using your crypto for leverage trading, by mastering candlestick charts, traders can better understand market trends and improve their overall trading strategies. TradingView – one of the most widely used charting platforms, TradingView provides candlestick charts for various cryptocurrencies.

how to read crypto charts

You can start to identify trends and get a better understanding of how assets behave under certain market conditions. It’s not advisable to trade cryptocurrency without using a chart. It’s essential to assess the trend, monitor chart patterns and support and resistance zones. CoinGecko is another popular online cryptocurrency data aggregator that provides market data, price charts, and other insights. CoinGecko’s charting features allow users to analyse price trends, compare cryptocurrencies, and track historical data.

On most crypto charts, a green candle indicates a bullish move or a price increase, while a red candle shows a bearish move or a price decrease. Each chart contains many distinctive green or red bars, and these are known as the candles or real bodies. Each one represents a specified time period, such as five minutes, an hour or a day. Homma discovered that by plotting the price of rice over time, he could identify patterns that might suggest the direction of future price movements.

Cryptocurrency Trading vs Stock Trading

A candlestick is the main price indicator in most crypto price charts. Each candlestick represents price activity within one unit in time (e.g., 30 minutes), as shown in the chart above. Have you ever looked at a token chart and wondered whether to buy or sell crypto? Learn how to read crypto charts for informed decisions in this article.

Staking Crypto: A Beginner’s Guide on How to Stake Crypto in 2024

Lastly, the distribution phase is when early investors begin to sell off their holdings. Looking at all these trends is key to understanding how the market feels about an asset. Most crypto traders will lose money, but the successful 5% of traders may make six figures and above. However, most traders will openly share that it took them many years and trials and tribulations before they became profitable. Fundamental analysis is an overview of the market influences around a crypto project.

Crypto traders often ignore sentiment analysis, which is a mistake because it drives the market. We have a herd mentality, meaning we tend to follow collective behaviour. Studying the charts can assist in risk management by providing insights into price volatility and potential price targets. Now you know the differences between cryptocurrency and stock trading, so let’s learn about the crypto trading process.

These can provide deeper insight into activity and trends in the market, and enable traders to speculate about what might come next. You might be wondering how to know which end of each candle represents the opening price, and which one the closing price. But you’ll be pleased to know there are lots of tools to help you understand the crypto market before you get stuck in, from crypto trading guides to the famous fear and greed Index. Other multiple-candlestick patterns involve three or more candlesticks.