When it comes to trading cryptocurrencies, the technical charts are something you cannot forego. Although the fundamental traders prefer to follow news regarding economic growth, political threats, interest rates and employment situations while trading cryptocurrencies, the technical traders use a variety of charts like the candlestick chart, bar chart, line chart and so on. It is not uncommon for the novice traders to face some difficulties in placing trades by reading the charts. You need to patiently learn the nuances of the cryptocurrency trading charts. It will take some time to master the art of interpreting the charts. The experienced traders also advise the nuevo traders to practise trading through the demo account first to gain confidence.
In short, the trading chart basically maps the movement of the price of an asset or a commodity. The ability to interpret these graphs is part and parcel of cryptocurrency trading, as it will help the trader to keep track of the current trades as well as detect a developing trend for their future trades.
Understanding the Trends
Some of the chart trends are easy to understand while others take some time. Trends can be recognised through a series of highs and lows. A sequence of mounting highs and lows indicates a Bullish trend while a Bearish trend is denoted by descending lows and highs. If the price movement is sideways then the trend is a horizontal trend. Time is also an important factor. Long-term, short-term and intermediate trends may co-exist and have the same or opposite directions.
Types of Cryptocurrency Trading Charts
Line Chart: A new trader should be initiated through the line chart. This type of trading chart only indicates the closing price over a period of time. The traders will have an idea about the closing price range through this chart but will not be able to determine the highs and the lows or the opening prices.
Bar Chart: The bar chart gives more information than the line chart as the highs and lows, opening and closing prices are plotted on the graph. A bar chart is made up of a string of vertical lines where all the lines represent some trading information. The opening price is represented on the left side of the vertical bar while the close price is on the right side of the bar. Both of them are indicated by horizontal lines. If the opening price is observed below the closing price and is indicated by green, blue or black shade then the chart depicts an upward trend, i.e., an increase in price. The opposite is observed when the value of the crypto asset decreases.
Candlestick Chart: Each candlestick in this type of chart has a different story to tell. It is quite easy to understand the Japanese candlestick patterns and a trader can do price action trading with the help of this chart. A neophyte trader can rely on the candlestick chart. The mappings on the chart are quite similar to that of the bar chart. The candles are used to represent the highs and the lows, the opening and the closing price instead of bars. Certain colours are used to denote the changes in the market over a period of time. In technical terms, the lines below and above the Real body of the candle are called shadows, tails or wicks. The upper surface of the body denotes the closing price while the lower surface of the body represents the opening price. The shadow above the closing price indicates the high while the one below the opening price indicates the low. If the candles are coloured green or blue then it shows an increase in price whereas red candles illustrate a downtrend. Short bodies of the candle represent minor price movements. A trader can understand if the cryptocurrency market is Bearish or Bullish through the bodies of the candle and shadows formed.
Renko Charts: This is another Japanese technique that has become popular worldwide. Renko candles or bricks are illustrated on the chart if the underlying asset shifts by a certain amount. The trader can decide the size of the brick. The green brick represents an increase in price while the red one shows a decline. The closing prices are only used in a given trading session- 1 hour, 4 hours and so on. A new renko is drawn only when the price advances by a predetermined amount. The trader can observe reversal signs when a series of red bricks are followed by a green brick or vice-versa. Renko charts are crucial in pointing out the breakouts and the key areas of resistance and support lines.
Once you have grasped the nuances of these charts/ graphs, you should practise your hand by setting up a demo account for trading cryptocurrencies. This will help you to successfully trade the virtual currencies on the real market.