Traders attempt to find opportunities in the crypto market by studying price charts, as technical analysis can help investors to identify market trends and predict the future price movements of an asset.
I am going to discuss the best ways to read a cryptocurrency chart, and also my take on what I believe is the easiest road to success for beginner traders when attempting to predict the market by reading price charts.
Candlesticks
Candlesticks on a price chart show the degree to which price movements have taken place, whether they be positive or negative within a specified timeframe.
With this basic insight in mind, along with the actual components of a candlestick and the variations in the size, and shape, of the candlesticks on the charts.
For me, this is a very limited method of technical analysis and provides nothing more than a visual representation of what has taken place. The useful part of candlesticks is that they allow us to look back in time and look at how the market behaved in the past. Perhaps by studying the past it can allow us to understand future price movements.
Renko Blocks
On the subject of candlesticks, I happen to think that RENKO Blocks are very useful for finding tradeable opportunities in the cryptocurrency market.
The basic premise here is that RENKO Blocks help denote major price trends in the market. And when the trend starts to change, so will the colour and the direction of the RENKO Blocks.
I find RENKO Blocks to be far more reliable than trying to read candlestick patterns. RENKO Blocks are exceptionally useful for trend traders and weekly and daily signals help filter out a lot of short-term noise. And also help to sharpen up entry points.
Chart Patterns
Chart patterns are a major part of trading and as such they make chart reading significantly easier with their presence.
These patterns are normally characterized as either bullish, bearish or neutral.
Some of the patterns that are bullish are the inverted head and shoulders pattern, double and triple-bottoms, ascending triangle pattern, falling wedge, and cup and handle pattern.
Some of the patterns that are bearish are the head and shoulders pattern, double and triple-tops, descending wedge pattern, rising wedge, and the bear flag pattern.
Some of the patterns that are known to be neutral are symmetrical triangle patterns, broadening wedges, and expanding triangles.
Support and Resistance
Support and Resistance is the classic form of technical analysis that most traders use in order to identify where the market may stop and reverse or indeed where the market might be inclined to head in the future.
Finding Support and Resistance is not an easy task by any means, however, the best way to find Support and Resistance levels is to look back at the past and try to identify significant market levels.
Horizontal Support or Resistance is the most widely used method, and this makes sense on many levels. Incorporating this type of technical analysis allows us to find key market levels and also it helps us create trading ranges, and also to find market breakouts.
Moving Averages
Moving Averages are a great way to get a basic overview of the underlying short, medium, and Long-term price trends in the market. The 20, 50, 100, and 200-period moving averages are the most widely used Moving Averages.
The short-term trend is bullish when the price trades above the 20, 50, 100, and 200-period Moving Averages on the four-hour time frame. The market is bearish in the short term when the price trades below the mentioned Moving Averages.
The medium-term trend is bullish when the price trades above the 20, 50, 100, and 200-day moving averages on the daily time frame. The market is bearish in the medium term when the price trades below the mentioned Moving Averages.
The long-term trend is bullish when the price trades above the 20, 50, 100, and 200-week Moving Averages on the weekly time frame. The market is bearish in the Long term when the price trades below the mentioned Moving Averages. Special mention should be given to the Golden Cross when the 50-day Moving Average crosses over the 200-day Moving Average, creating a buy signal. A Death Cross occurs when the 50-day Moving Average crosses under the 200-day Moving Average, creating a sell signal.
Trendline Analysis
The art of drawing Trendlines on a price chart is not an easy one, and it is open to a lot of interpretation. Trendline plotting is a perfectly plausible method of technical analysis for cryptocurrency trading, however, finding the correct candles to which to attach the correct candlestick is tricky, but with plenty of practice your Trendline plotting skills can quickly get better.
Special attention should be paid to higher time frame Trendline plotting, such as the daily, weekly, and monthly time frame, as this will allow you to not only identify likely price targets and patterns but far more interestingly, it will help you see the bigger picture.
Price Gaps
Price Gaps tend to form on stock and FX charts, however, gaps are also present in the CME Futures chart for Bitcoin, and the basic premise here is that the Gap will eventually be closed.
Eventually, the price will "Fill The Gap". This is true to some extent, although some Gaps on the chart are so far away that it is not a realistic scenario that the market will make huge moves triple-digit percent moves just with the sole aim to close the Gap.
A more realistic scenario is for the market to close Gaps that are a few hundred dollars away from the current price action of even in extreme cases, a few thousand dollars.
Volume
Volume is a great way to of trying to identify whether market moves are fakeouts or breakouts.
The basic idea is that high-volume trading moves have validity because the moves are backed by real and genuine price flows, such as institutional and professional money. Trend changes or extremely large trends often occur on the back of high Volume.
Price moves that take place of low Volume are far more likely to be fake because the market has risen with the presence of the required Volume for the move to stick around. Low Volume is synonymous with range-bound trading and fake price moves.
Trend and Momentum Indicators
The Technical Indicators for traders to choose from in analyzing a chart are very extensive. You’ll likely find that some indicators work very well for you in forecasting price movement for some stocks but not for others.
Technical analysts often use indicators of different types in conjunction with each other. Technical indicators are classified into two basic types: trend indicators, such as moving averages, and momentum indicators, such as the MACD or the average directional index (ADX). Basically, trend indicators are used to identify the overall direction of a cryptos price, up or down, while momentum indicators gauge the strength of price movement.
