One of the most important aspects of being a successful technical analyst is learning to read charts properly.
In fact, knowing how to read charts and use indicators are the most critical skills any technical analyst should possess.
There are various kinds of charts and even more kinds of indicators.
Charts and indicators are invaluable tools in a technical analyst’s arsenal. They show market details, helping you identify trends and patterns and make better decisions. Better decisions, by extension, mean greater profits.
What Is A Crypto Chart?
A crypto chart is a visual representation of market conditions. Charts display relevant data. They show trends and patterns, allowing you to make better and more informed decisions.
The basic idea of different charts is the same. On the Y or vertical axis, you can find the prices. On the X-axis, you can find the time. To pinpoint the price at a particular time in the past, you simply specify the timeline on the X-axis and trace the corresponding price described by the Y-axis.
There are different kinds of charts. Each of these kinds differ based on complexity, how easy they are to read, and how much data they display. A few of these examples are
Candlestick Charts
Candlestick charts were invented in japan by a rice trader named Munehisa Homma.
They can seem intimidating at first glance but are pretty easy to read once you get the hang of them.
Candlesticks display the nature of price movements, patterns, and trends by using candlesticks of different colors to denote the differences. Each candlestick has a colored portion in the middle showing the starting and opening prices for a trading period. This portion is referred to as the ‘body.’ A candlestick’s body can have an upper or lower ‘wick’ or shadow showing the highest and lowest prices.
In Japanese candlesticks, lighter colored ones like green or white indicate bullish candles, while darker colored ones like red or black indicate bearish candles.
Candlesticks are by far the most valuable kinds of charts. They display candlestick patterns that can be powerful indicators of what is going on in the market at any point. Some of these patterns include
- The Three line strike pattern
- The Harami pattern
- The Doji
- The Evening star pattern.
Line Charts
Line charts are by far the most basic kinds of crypto charts. They are easy to read and understand but offer fewer details than other charts. Line charts create a line by pinpointing the closing prices for different periods.
They display these lines by the hour, day, months, or even years, depending on what their user wishes to see.
It is also important to remember that there are two kinds of line charts.
- Linear Line Charts
- Logarithmic Line Charts
A linear line chart plots the line according to the price scale. In the logarithmic line charts, prices are plotted according to percentage change. This means that if two price changes are different in absolute value yet equal in percentage, they will be represented by the same vertical shift on the logarithmic chart.
Line charts measure price changes, while log charts measure trends.
Area Charts
Area charts are similar to line charts. They differ from line charts, however, in that the lower portion of line charts is filled with color. In addition, areas with more robust trends have darker shading than areas with weak trends.
Area charts show the change in prices over a period of time. They are best used
- When one intends to read the primary value of a coin
- For reading the rise and fall of a coin’s price over time
- For showing the change over time, in individual parts of a single chart
- Emphasizing part-to-whole relationships between areas of the chart with more robust trends than others
