How to Read Bitcoin Charts
You may have come across terms thrown around in the crypto space such as “head and shoulders”, “rising wedges” and “cup and handle”. These are used by traders when analyzing crypto chart patterns. In this guide, we explain how to read bitcoin charts and highlight popular crypto chart patterns you should know about.
What is chart analysis?
To determine whether to go long or short when trading Bitcoin, you can use charts that provide you with timely insights. Technical analysis can help traders evaluate price trends and crypto chart patterns to spot trading opportunities.
Technical analysis involves the analysis of past trading activity and price movements of an asset, which can help predict future price movements to some extent. Technical analysis uses patterns in price information to spot trends and make predictions.
Bitcoin chart analysis is important in that traders can interpret charts to better understand the herd mentality. Uptrends and downtrends are part of a general market symphony of rising and falling prices.
In other words, a steady increase in the price of a digital asset is often an indicator of optimism and excitement in the market. The opposite is also true. A crypto asset with a downward move reflects a gloomy market outlook and puts pressure on sellers.
Both bullish and bearish trends can only be reversed if market participants’ attitudes change.
However, Bitcoin chart analysis relies on mathematical and statistical modeling to understand price and market behavior. Three main principles apply to bitcoin chart principles:
- History repeats itself
- Price dynamics is a trend
- The market discounts everything
Applying these principles, you can easily draw on a variety of influences, including behavioral and traditional economic principles, to predict market movements.
Remember that technical analysis not only focuses on price movements, but also provides indications of market sentiment. To use the crypto chart analysis method, you need to consider factors such as historical crypto demand trends, global regulatory trends, and current trends in the crypto community.
How to read crypto charts
Reading crypto charts is essential for anyone looking to trade digital assets. If you want to judge price trends using a crypto chart, you need to become familiar with the different types of charts. There are three common types of charts used by traders; Line charts, bar charts and candlestick charts.
Line diagram
A line or chart chart is a visual representation of the price movement of a digital asset using a single, solid line. A line chart displays data as a series of data points connected by straight line segments. A line chart is the most basic type of crypto chart and usually only shows closing prices.
In the chart above, the horizontal axis is the time scale and the vertical axis is the price. You can calculate the crypto price by connecting a data point to the horizontal axis in a straight line, and the date by connecting a data point to the vertical axis. Each point on the chart tracks the daily closing price.
bar graph
A bar chart is made up of multiple price bars, with each bar representing price action over a specific period of time. A bar chart visually represents the price fluctuations of an asset during a specific time frame.
In the chart above, the vertical line on the price bar shows the high and low prices for that period. The horizontal lines on either side represent the opening and closing prices.
Candlestick charts
The most popular crypto chart out there is a candlestick chart. A candlestick chart uses candlesticks to depict the up/down trend of the crypto price within a given time period.
A candlestick consists of a body and a wick. The body of the candle represents the opening and closing prices, while the wick attached to the top represents the crypto’s highest price within that time frame. The wick at the bottom represents the crypto asset’s lowest price within the selected time frame.
The colors of the candle have meaning. The red candle shows that an asset’s price has fallen, while the green candle shows that an asset’s price has risen.
Popular Crypto Chart Patterns You Should Know
Crypto charts form various patterns that traders can use to take a position based on their importance. A chart pattern is a shape within a price chart that can show upcoming price movements based on historical trends. Crypto chart patterns are the basis of technical analysis and can help traders predict price trends.
Crypto chart patterns can be classified into the following groups:
- continuation pattern Provide continuation signals of the current trend.
- Bilateral patterns indicate high volatility and uncertainty in the market.
- reversal pattern give reversal signals.
Here are five popular crypto chart trading patterns to trade with.
head and shoulders
This is an advanced chart pattern that is bullish and bearish with a large spike in the middle and smaller spikes on either side. It is characterized by a transient high and low followed by a major correction up or down, and follows the third move up or down that matches the first move.
Triple and double top and bottom
A double (or triple) upper and lower chart pattern occurs when markets bounce off the same resistance or support level twice (or three times) in a row. A bullish indicator is considered a double bottom while a bearish trading signal is called a double top. Both triple and double patterns usually indicate that market sentiment has changed and prices are about to change direction.
Ascending and descending triangle
Ascending and descending triangles are created with a horizontal trendline connecting highs and lows and a second trendline connecting rising highs and falling lows. The resulting triangle reaches a decision point where price breaks out or crashes from the horizontal line towards the sloping line.
cup and handle
A cup and handle is a bullish reversal pattern that mirrors a cup, with the cup resembling a rounded bottom chart pattern and the handle resembling a wedge pattern. The right side of the pattern denotes low trading volume that can last for a period of 7 to 65 weeks.
wedges
Wedges are bullish and bearish reversal patterns that occur when trend lines converge. A rising wedge is a bearish signal, while a falling wedge is a bullish signal.