How to read crypto charts - The Beginner’s Guide

Reading cryptocurrency charts is crucial for traders and investors to discover the ideal market opportunities. Technical analysis will help traders and investors see market patterns and predict how a price of an asset will move in the future. 

By the time you finish this article, you should have a fundamental understanding of what to pay attention to on a chart and how it operates.

Beginning with the basic fundamental abilities that everyone must know, this article will answer the following questions:

• How to read Japanese Candlesticks?  
• What is Technical Analysis? 
• How to identify support levels and resistance levels?
• How to identify patterns on charts? 

Understanding Japanese Candlesticks

Japanese Candlesticks are the most popular method to indicate the price of a crypto coin. 

Each candlestick indicates price movement for a single unit of time (e.g. 15 minutes). 

At the end of the day, there are only two types of candles, on most charts. Bullish candles are represented as green color, and bearish candles are usually indicated as red color. 

As represented in the picture above a candlestick consists of two main parts: 

• The body.
  
  Which is the thicker component of a candlestick, that indicates the opening and closing price of a coin.
  
  
• The shadow.
  
  Which is the thinner part and indicates the highest and lowest price points.

With time traders and investors started to notice candlestick patterns repeating on different timeframes and with different assets. Let's discuss some of these patterns. 

Candlestick Patterns

Candlestick patterns are the formations of the Japanese candlestick that are commonly seen on the charts. There is a decent probability that the same formation can lead to the same price action.

It can be used to identify the continuation or the change of a trend. That will help you to take a short or long position, and leave the trade at the right moment. 

Bullish Engulfing pattern

One of the most useful candlestick patterns for traders and investors is the Bullish Engulfing pattern. 

This pattern forms when a small red candlestick is followed by a large green candlestick that completely engulfs the red one. It indicates a potential reversal from bearish to bullish sentiment.

A Bullish Engulfing pattern occurs when a small red candle is followed by a big green candle that completely covers the red one. 

This shows that the sellers were in control at first, but then the buyers took over and pushed the price higher. This is a sign that the market might be reversing from a downward trend to an upward trend.

Bearish Engulfing pattern

Another important candlestick pattern is the Bearish Engulfing pattern, which is the opposite of the Bullish Engulfing pattern. 

This pattern forms when a small green candlestick is followed by a large red candlestick that completely engulfs the green one. It indicates a potential reversal from bullish to bearish sentiment.

Hammer and Hanging Man patterns

Additionally, the Hammer and Hanging Man patterns are commonly used to signal a potential reversal of a trend. 

The Hammer pattern forms with a small real body, a long lower shadow, and little or no upper shadow. It indicates that the bulls are trying to push the price up, but the bears are pushing back, creating indecision in the market. 

On the other hand, the Hanging Man pattern is similar to the Hammer, but it forms during an uptrend and indicates a potential reversal to a downtrend.

Technical indicators 

In addition to the nest patterns, traders and investors also commonly use other indicators such as support and resistance levels, MA, RSI, and MACD to identify trends and make trading decisions. 

• Moving Average (MA)
  
  A trend-following indicator that aims to smooth out price volatility by displaying the average price over a specific period of time. This can assist traders in identifying the trend's line as well as possible areas of support and resistance.
  
  
• The Relative Strength Index (RSI)
  
  Is a momentum indicator that measures the speed and magnitude of a crypto asset price change to identify whether the market is overbought or oversold. When the RSI is greater than 70, it is considered that there is overbuying; when it is below 30, it is deemed to be overselling.
  
  
• The Moving Average Convergence Divergence (MACD)
  
  Is a trend-following momentum indicator, it utilizes the difference between two Exponential Moving Averages (EMAs) to identify potential buying and selling opportunities. Additionally, it shows a histogram that helps to identify the trend line and possible changes in its direction.

These indicators, along with knowledge of candlestick patterns, can be used to create a comprehensive technical analysis strategy.

What is Technical Analysis? 

Technical Analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volumes. 

The goal of technical analysis is to identify patterns and trends that can indicate future activity. It is commonly used in the stock market, but can also be applied to other markets such as the cryptocurrency market.

What are support and resistance levels?

Support and resistance levels are key levels on a chart that indicates where the price of an asset is likely to experience a significant change. 

A support level is a level where the price of an asset tends to find support as it falls, while a resistance level is a level where the price of an asset tends to find resistance as it rises. 

These levels can be used to identify potential buy and sell opportunities.

How to identify support levels and resistance levels?

To identify support and resistance levels, traders and investors use various methods such as:

• Trend lines
• Moving Averages
• Fibonacci retracement 

A trend line is a straight line that connects two or more price points and is used to identify a current trend in the market. 

A moving average is a widely used indicator that calculates the average price of an asset over a specific period of time. 

Fibonacci retracements are used to identify potential levels of support and resistance by measuring the size of a move and then applying Fibonacci ratios.

Conclusion

Reading crypto charts and understanding technical analysis is crucial for traders and investors in the cryptocurrency market. 

By understanding Japanese Candlesticks, identifying patterns, and using indicators such as support and resistance levels, traders and investors can make informed decisions and increase their chances of success. 

It's important to note that technical analysis is not a guarantee of future performance, but it can be a useful tool in any trader's or investor's toolbox. As always, it's important to conduct your own research, and consult a financial professional before making any investment decisions.

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F. A. Q.

Do crypto patterns work?

Crypto patterns on the charts are good for an understanding of market psychology and assuming the potential move. However, they are not the golden standard for accurate prediction. 

You should combine patterns with technical and fundamental analysis to be closer to the right prediction of the price move. 

What should I look for when looking at a crypto chart?

Support and resistance levels are the basis for defining the demand and supply zones. 

Indicators like the Estimated Moving Average (EMA) and Relative Strengths Index (RSI) will help you to define a trend line and see whether the asset is overbought or oversold. 

Trading volume will confirm or refute the strength of a price movement.

How do you analyze crypto before buying?

The main instruments are fundamental and technical analysis. 

The first one can show the asset’s reasons for growth, such as a strong team and investors, balanced tokenomic, powerful underlying technology, or a use case. 

While with technical analysis you can identify good moments for buying as an investment or trading the asset in a particular time frame.

How do you predict crypto charts?

There are no predictions here, everything is based on assumptions and probability. 

You can use technical analysis indicators, Japanese candlestick patterns, and fundamental analysis to identify buy or sell points for a crypto asset. 

You should also rely on macroeconomic analysis to understand the state of the economy and the risks to high-risk assets.

What is the most accurate indicator for crypto?

You should not rely on one indicator only; instead, you should use at least 3 of the most accurate indicators for crypto, which are MACD, Bollinger Bands, and RSI.