How to read crypto charts
If you are new to crypto trading, this article will help you better understand the basic elements of crypto charts. Reading crypto charts may seem complex and a bit intimidating. However, with a good introduction to crypto charts and a little practice, you’ll soon be able to read them on your own.
In this blog post, we break down the three basic elements of a crypto chart - time frames, candlesticks and trend identification.
Arguably the most basic element of charts is the timeframe. In the picture below, you can see how to select a time frame on TradingView charting tool, which is also used on Sparkdex. Time frames range from 1 second to 1 month. For instance, if you select a 1-min charts, the candlesticks will be based on the closing price every 60 seconds.
So, there are a lot of options available for you to choose from. This leads to the question - which chart time frame should you trade?
This entirely depends on what kind of trader you want to become. Scalpers - traders who aim to make a quick few pips in their trades - tend to operate in the lower time frames - usually 5 min to 30 min. On the other hand, mid-to-long term traders prefer daily or weekly charts as they offer the big picture scenario.
For beginners, our advice is to use the most popular time frames - 1-hour and 4-hour charts. They offer a bit from both sides - day trading elements as well as the big picture. Once you become more versed in charts, you can use multiple time frames to validate initial trading ideas.
Although there are a few different ways to set up your crypto charts, the vast majority of traders and analysts use candlesticks. A candlestick represents the price activity of an asset during a specified timeframe. As seen in the photo below, a candlestick consists of four main components: the open, close, high and low.
In case the closing price of an asset is higher than the opening price, the candlestick will appear green. If the closing price is lower than the opening price, the candlestick will appear in red. The colour is selective and you can set up your colour preference easily on the Sparkdex. The vast majority of traders use green (bullish) and red (bearish) colours.
Once you have selected your preferred time frame, you can start monitoring the price action more closely. The first step in this analytical part of the trading process is to identify the trend. A correct trend identification is arguably the most important element of the trading process. If you get this part right, you are well-positioned to extract profitable trading signals from a chart.
In general, there are three possible trends - uptrend, sideways and downtrend. Hence, the price action is either moving up, down, or sideways, meaning it prepares to move upside or downside, since this is the name of the game. In the BTC price chart below, we show you a chart of Bitcoin where all three trends are present.
In the first part of the chart on the left hand side you see that the price action is moving upside. As a basic rule of the trend identification, you pay attention to the direction of the price action. If you can identify multiple higher highs in a sequence, the price action is an obvious uptrend. Sometimes the price action moves upside, however, there is a lot of choppiness in the structure. In this case, try to avoid these charts as they prove to be quite unpredictable to trade.
The middle part of the chart is characterised by a clear downtrend. You can see that the price action creates a series of lower highs, where at least three points can be easily connected to create a down-slipping trend line.
Finally, the price action enters a sideways direction, or “range”. When markets are ranging, it usually means that a move up or down is in the making, as the market consolidates its energy to prepare for the next stage. The longer the consolidation stage is, the higher the chance of a strong move there is. See our recent Bitcoin price analysis when BTC was trading sideways to get a feel for market sentiment at the time.
Time frames, candlesticks and trend identification
In this blog post, we outlined the three basic elements of crypto charts. Once you become more familiar with all three basic elements, and a little bit of practice, you will be well-positioned to move towards a more advanced stage in the trading process. While time frame and candlestick are the absolute basics of a chart, the trend identification requires practice and focus as this is the part where you lay the foundation of an entire trading process that is to follow.