Crypto charts

Understanding Crypto Charts: A Beginner’s Guide

Last updated: June 11, 2024


Written by CryptoCasino — Cryptocurrency Specialist with extensive knowledge in blockchain technology and digital currencies. Skilled in analyzing market trends and offering insightful perspectives on crypto currency investments and developments.

People think that crypto trading is an easy way to make money. They imagine that they can become millionaires and billionaires from one day to the other, simply by buying and selling digital tokens that obey no rules of the real world.

While it is true that the original crypto traders positioned themselves early and profited from multiple bull market situations in the 2010s and early 2020s, the life of a crypto trader these days can be complicated. Crypto charts, tokenomics, trends and patterns are required to study those situations. Almost as much as studying regular financial products and derivatives. Thousands of online pages analyze the current situation in digital coin markets, give tips, make predictions for the future, and help people learn crypto trading daily. This article won't make you an expert. But it will help you build a solid understanding of this relatively new world. And it will help you avoid traps, scams, misinformation, and unpleasant surprises.

Basics of Crypto Charts

If you possess basic mathematical and statistical experience, this area will be easy for you. When you learn how to read crypto charts, you will realize that this isn't much different from reading charts for trading technical analysis or even basic economic analysis. The same three types of charts that govern the two worlds above dominate the crypto charts world.

Line Charts have been, for many years, the basic tool that analysts and financial traders use to predict future trends. Several points that indicate closing prices in the past are connected with a line and describe a past and current trend. While they remain very basic in their original format, they remain at the forefront of technical analysis for over a century. And there is a reason for this. 

Bar Charts take the concept a step further. They are not limited to displaying closing prices only. They are designed to show the progression of the price throughout the day and over a specific time period. They can include a cryptocurrency's Open, High, Low, and Close values, which is why they are often referred to as OHLC charts. 

Candlestick Charts take technical analysis a step further. They go deeper into analyzing cryptocurrency chart patterns by introducing definitions such as time interval highs and lows, bearish and bullish candlesticks etc. 

As you progress in your trading career, you will realize that more complicated charts will provide deeper insight and help you identify patterns that can't be seen in simple line and bar charts.

Common Patterns and What They Signify

Over the years, crypto trading has developed its vocabulary and terminology. Definitions such as bull run, and bear market exist in digital currency. Cryptocurrency chart patterns can reveal much about the current situation and the trading environment, while some insist that they can predict the future accurately. But can they?

To understand this, one needs to figure out first if there is an uptrend, a downtrend or a side trend in the assets they look. What are these trends? As the words suggest, they describe the overall direction of the price of an asset. Or a portfolio of assets. Uptrends describe an overall movement to increase the price, and downtrends the movement towards a lower close price. At the same time, side trends signify an equal demand and supply that keeps the price almost stable over a specific period.

Reversal Patterns

Some claim that understanding and trading reversal patterns is the key to making money from purchasing and selling digital currencies. Crypto charts can reveal the so-called reversal and continuation patterns.

The first category, reversal, happens when there is a change in the price direction, usually more significant than a pullback. Traders will try to remove their positions before the reversal to prepare for the shift because they expect a quick sell-off on certain assets.

We can write entire essays about the different reversal patterns. However, most traders will focus on a few popular ones, such as the head-and-shoulders, double top and double bottom, and sushi roll patterns. Of course, you can also study the Quasimodo and Wedge patterns since they have gained momentum lately in the crypto chart indicators analysis. Head-and-shoulders will identify three peaks (two shoulders and the head in the middle) and will connect with a line (neckline) to the two bottoms that have been identified before and after the head (mid-peak). When the price of an asset falls under the neckline, traders require a signal for a new trend and actions.

Double Tops and Double Bottoms display two points in the past where the asset price couldn't support resistance or support levels. These crypto charts help traders understand momentum and psychological entry or exit points in their strategy. Based on these double tops and bottoms, some analysts added triple tops and triple bottoms to add more depth to their technical analysis and increase their chances of better understanding the market.

Continuation Patterns

For most people, this is an advanced terminology that requires reading it again and again before it can be digested. Continuation patterns are these pauses in the movement of an asset price, when the value remains frozen briefly; and then moves in the same direction it was before.

What's the point of studying these patterns? Good question. It turns out that traders can read behind the lines, and during this pause, they can make decisions based on the prognosis that the price will move in the same direction. Complicated? Of course, it is! It gets even worse if you realize that these patterns in crypto charts create shapes such as triangles, flags or pennants. This aspect of trading technical analysis requires deeper knowledge and understanding of statistics and econometrics theories.

Practical Tips

Unfortunately, there is no easy way to figure out what these crypto charts mean. Or to understand the actions required based on their fluctuations. Thousands of online resources will help you dig into the subject. Create your trading philosophy and execute based on theoretical scenarios.

You can even follow the influencers-traders of the digital era, those with a proven record of sustainable profitability. If you start your trading journey now, dedicate hours of studying and experimenting before trading large sums.

Key Indicators on Crypto Charts and How to Use Them

The first thing you will notice when you try to learn crypto trading is the importance of key indicators and how to read them to improve your market skills. While many names will sound familiar—especially if you already trade financial products and derivatives—crypto indicators should be used slightly differently. Since cryptocurrencies are more volatile than regular currencies, the indicators must be used with other tools.

One of the most important aspects of this analysis will include checking the volumes of an asset compared to its price to understand if this is a sign of a trend change. As you improve your game in the crypto world, such checks will be part of your everyday life.

After you have acquainted yourselves with the notion of volume as a key indicator, we move into more advanced indexes. Moving averages are, for some traders, the primitive trading tools for the job. They remain efficient and widely used for over a century, though. There must be a reason for this. The moving average captures an asset's price trend over a set period. Instead of focusing on the ups and downs, the SMA will draw a line to indicate the trend. and not the hiccups.

Similarly, the Exponential Moving Average will draw the pattern, but instead of using average values, it will emphasize recent prices. While it sounds simple in theory, this tool can be set up differently to incorporate changing market conditions and traders' strategies.

On the other hand, the majority of those who invest and observe cryptocurrency price fluctuations, use primarily the RSI to navigate through price reversals. The Relative Strength Index is the best tool traders have to understand if an asset is overbought or oversold. It uses a simple scale to dictate the strength of a position and suggest the next steps by measuring how quickly and dramatically prices will change.

The index will use a predefined time frame to observe the average profit and loss. When the RSI reaches 70 and above, the asset has been overbought, and there are strong chances of an incoming sell-off. On the other hand, a price under 30 means the asset has been oversold, and it's often the signal for the price recovery.

Finally, we should use the Moving Average Convergence Divergence (MACD), widely used among traders of all experience levels. This tool checks different EMAs to draft signal lines. The relative position of the MACD lines above or below the signal lines marks the time for action on behalf of the traders. While the MACD is more complicated to analyze and draft, it is necessary for any successful trading strategist.

How to Start Practicing

Crypto trading involves some serious risk, just like trading monetary assets, stocks, currencies, commodities, or gambling. Therefore, most trading platforms will allow you to perform trading simulations before you decide to invest using real money.

In addition, it's quite common for crypto trading websites to provide tutorials, tools for technical analysis, and even one-on-one mentoring for VIP customers. Before trying the real thing, we strongly advise you to use all the above and test trading scenarios using demo accounts. This will help you get used to the tools, learn, and increase your chances of becoming a better trader and subsequently making more money from your trades.

Resources and Tools

If you don't know where to start when learning this new world, you need to navigate some reputable websites, use some popular tools, or simply do both.
Investopedia and Coindesk are two of the primary information sources for traders at all levels. It has many practical examples and a full list of cryptocurrency chart patterns, regular updates, news, FAQs, etc.

There are endless options online when it comes to software that can be used to improve your trading skills and potential profits. Some are free and some require a membership. or even a one-off fee. Trading View, Crypto Wallet Track, Coin Market Cap and a few more are suitable for traders of all levels. Even if you need to buy a membership to access all their functions, traders have yet to reach the world's top without help.

Continual Learning

If the above mentioned crypto chart review and analysis still need to be clarified, we shall explain clearly that making consistent profits by trading crypto is a rather complicated process. It involves reading, studying, practicing, analyzing, communicating, and eventually investing.

Unlike traders in the early days, modern investors have access to numerous tools and knowledge centers. The deceiving image of influencers making money while living the high life has made people believe they can make money effortlessly, which isn't really the case.

Final thoughts on Crypto Charts for beginners

Before diving into cryptocurrency trading, you need to exhaust all resources that can assist you in this challenge. You don't necessarily need to master all aspects of technical analysis. But you ought to have a basic understanding of crypto charts, learn to identify basic trends and search online for all the tools (free or not) that can help you on this amazing and rewarding journey.

It's not uncommon for traders to start the pilgrimage with little or no funds and gradually grow their portfolios and positions until they get more experienced and increase the stakes. If this is a time in history when investors can benefit from access to multiple knowledge sources, then you need to realize that we live in it. And we owe it to ourselves to make the most of this information.