How to Read Crypto Charts and Get the Most Out of Them

Written by Ethan M. Stone

Crypto charts, which show the price and volume history of cryptocurrencies over time, are among the factors people cite as making it hard to get into cryptocurrency trading. At first, it can be hard to figure out how to use these crypto charts, but the effort is well worth it. Investors can turn raw price data into useful information by reading and understanding these charts. This makes it easier to spot trends, measure volatility, and even find possible turning points. This way, both traders and investors can make better choices about trading, investing, or managing risk in the crypto markets.

A Brief Overview of Crypto Chart Types

Each of the charts mentioned here can be studied and explained in great depth, but for the purposes of providing a quick overview of each type, they will be provided here.

First, line charts. These charts look as one might expect: a line that stretches from one end of a graph to the other with variation in height representing rising or falling prices. In the context of crypto, line charts connect closing prices over time, making them useful for quick, high-level views of general price direction and history. Line charts work well for understanding long-term trends, but since they tend to lack detail, they are not as useful for short-term trading.

Candlestick charts are among the most prevalent in the crypto industry, especially for traders who use them for short-term analysis. In brief, each time interval shows the open, high, low, and close, all of which can provide a fuller picture of intra-period volatility and price action.

There are other, more advanced chart types like OHLC charts, with some focusing more on price action than time-based intervals. Still, candlesticks and line charts remain the most common types for short-term and long-term use, respectively.

How Candlestick Charts Capture Sentiment and Volatility

Because crypto markets can change rapidly, candlestick charts are designed to show how factors such as market sentiment and volatility affect price movements over a given period.

Each candle on a chart is composed of two parts: the body and the wick. The body shows the difference between the opening and closing price, whereas the wick shows extremes, i.e., the high and low during the time period.

Candles also come in red or green; while red/”bearish” candles suggest selling pressure since their closing is smaller than their opening, green/”bullish” candles tend to suggest buying pressure as a result of a larger closing than opening.

Utilizing candlestick charts to their fullest extent can be challenging and often requires a substantial amount of time, patience, and practice, but for many users, these challenges are more than worth overcoming. By watching sequences of candles, i.e., how their bodies and wicks change over time, users can better identify patterns, volatility spikes, and momentum shifts before they happen.

Chart Patterns and Technical Analysis

Much of the predictive power found in crypto charts stems from the patterns they reveal when properly read and interpreted. For example, Be(In) Crypto explains that chart patterns can be used to “identify trend reversal, trend continuation, and bullish or bearish momentum.”

Many chart patterns can be recognized by looking at factors like support/resistance zones and breakouts, with different pattern types hinting at different kinds of likely price behaviors.

Look at the “hammer” candlestick pattern. This bullish pattern typically appears after a downtrend and indicates that more buyers are entering. It looks like green candlesticks with short bodies and long wicks that are open. On the other hand, a “hanging man” has a long lower wick and a small body. It shows up at the top of an uptrend, which could mean that the trend is about to turn bearish.

Notably, the data gathered from these patterns is probabilistic and does not guarantee a specific outcome. As such, many traders combine chart patterns with signals like moving averages and volume to inform more robust analysis.

Crypto Charts and Contexualizing Market Movements

Traders and investors need crypto charts because prices can fluctuate significantly, even over short periods. They can learn more about how drawdowns and price surges have occurred in the past by reviewing historical charts. They might then use this information to develop plans for the future.

Charts are also a good way to establish meaningful reference points that are hard to find in raw numbers. Measuring things like past support and resistance levels, average volatility ranges, and historical highs and lows can help you figure out how to manage your risk and when to trade.

The cryptocurrency market is notorious for causing traders and investors to respond to movements emotionally rather than logically, contributing to the massive highs and lows commonly seen in the industry. With charts, traders and investors can view movements through a more objective framework, giving them the space and environment they need to avoid the pitfalls that often come with price spikes and dips.