Trality has been discontinued as of 31.7.2023. Thank you to all our users đź’™.
Trality has been discontinued as of 31.7.2023. Thank you to all our users đź’™.
Trality has been discontinued as of 31.7.2023. Thank you to all our users đź’™.
Trality has been discontinued as of 31.7.2023. Thank you to all our users đź’™.

How to Read Crypto Charts Like a Pro

MORITZ PUTZHAMMER

12 December 2022 • 11 min read

Table of contents

I know what you’re thinking: with all of those plot lines, flowing waves, and patterns in red and green, how can anyone without a degree in finance or a decade of trading experience on Wall Street make any sense of crypto charts?

crypto chart, candlesticks, BTC
Simple, right?

Despite appearances (and the above chart pokes fun at trading charts), it’s neither as complicated nor as impossible as it might first appear. It’s also an indispensable skill if you’re a crypto trader. Think about it. Would you fly a plane without being able to read the instruments, or pilot a boat without the ability to read nautical charts? The simple fact is that you cannot do either without hours and hours of training and an actual license.

And yet the assumption among many is that they are natural born crypto traders. Who needs crypto graphs when your intuition tells you that coin X is going to moon? Or, since a social media influencer with millions of followers (we can’t bring ourselves to mention her name) says that EthereumMax digital token EMAX is the token to buy, it has to be a good investment, right? As they say in the crypto space, you’re almost guaranteed to get rekt with this type trading “strategy.”

Consider the following article, then, as an anecdote—your informative (but by no means exhaustive) primer on how to read crypto graphs in order to mitigate risk and increase profits, particularly if you’re a novice crypto trader. In the following sections, we’ll examine the constitutive or essential parts of a crypto trading chart, breaking each aspect down into digestible pieces.

The Anatomy of a Crypto Trading Interface

Whether you decide to plot your trading strategy with a crypto exchange, a separate service such as TradingView, or even Trality (yes, you can do all of the essential plotting with our Python Code Editor!), you’ll be happy to learn that a typical crypto interface has a number of common features. These include (but are not limited to):

  • Trading pair
  • Price
  • Volume
  • Timeframes
  • Order book
  • Market depth chart

Binance, the world’s largest centralized crypto exchange, has a robust, albeit fairly standard and straightforward trading interface (the image below is from their spot trading feature), which includes the following features:

  • Candlestick charts
  • Depth charts
  • Time intervals
  • Drawing tools
  • Technical indicators
  • Order book

The crypto chart

Binance, crypto trading chart, candlesticks
Binance's trading interface with a crypto chart in the middle

The crypto order book

As you can see, the trading pair in this example is BTC/USDT, with the order book (the currently open buy and sell orders for an asset organized based on price) on the left side.

Binance, order book, crypto, BTC/USDT
Detail showing Binance's BTC/USDT order book

Moving averages and timeframes

Note the one-day (1D) timeframe (indicated just above the chart in the center) using three moving average technical indicators: MA(7), MA(25), and MA(99).

Binance, moving averages, timeframes, trading
Detail showing Binance's moving averages and timeframes

On Binance’s chart, the three technical indicators are demarcated by the three colored lines (orange, purple, and light blue, respectively). MA(7), for example, represents the moving average over seven candles of the specified time interval (in our case, 1D or one day).

But what are candles—those alternating, vertical bars shown in red and green? Let’s take a closer look in the next section.

Why Do Crypto Traders Use Charts?

At the most elemental level, crypto trading charts (sometimes referred to as crypto graphs) serve as a visual representation of the market’s projected or anticipated movements in which traders identify trends as well as map out ideal trade entry and exit points (this process is known as technical analysis—more below). To put it bluntly: without charts, you’re simply guessing.

Although it might seem like a daunting prospect at first, the ability to read crypto graphs is an absolutely essential skill. You’re putting your hard-earned cash or coin on the line in a market with significant volatility. Continuing with our above analogies, who wouldn’t want to be able to foresee turbulence or smooth sailing on the horizon?

Crypto charts provide these types of crucial insights. Without the ability to recognize and understand patterns, traders are simply flying blind. Worst case scenario? They crash-land or run ashore, financially-speaking, and nobody wants that to happen.

Let’s turn our attention to one key element of crypto charts—candlesticks.

Crypto Charts and Candlesticks

The first point to be made is that we’re dealing with candlestick charts rather than a line chart or a bar chart.

Bitcoin price from 2009 to 2019. The historical line chart shows the changes of price of Bitcoin (BTC). (Source: BitcoinWiki)

There are also market depth charts to consider, too.

A market depth chart provides a visual representation of unfilled buy/sell orders on the order book. (Source: Binance)

As we’ve seen, crypto graph analysis involves studying candlestick and chart patterns derived from technical analysis, typically on different timeframes. The x axis on the right at the bottom displays the period of time in days, while the y axis on the right displays the price.

Binance, crypto trading, crpto chart, BTC
Binance's crypto trading chart within its trading interface

The Anatomy of a Candlestick

Now each candlestick—or the vertical bars in red and green—is created by combining a specific set of data related to price within a specified timeframe. Each candlestick is made up of four components:

  1. Open price
  2. High price
  3. Low price
  4. Close price
An illustration of crypto cadnlesticks (Source: Binance)

So why the difference in colors?

  • Green candlestick: the price of the coin or token closed higher than it opened.
  • Red candlestick: the price of the coin or token closed lower than it opened.
crypto, candlesticks, crypto trading
An alternative illustration showing the anatomy of a candlestick (Source: crypto.com)

There is a bit of additional terminology to know when dealing with candlesticks.

  • Body: the distance between the open and close
  • Wick: the distance between the body and the high or low
  • Range: the distance between the high and low

However, all candlesticks are not created equal. As you can see in our example, there are candlesticks of varying lengths; some candlesticks are long, some are short, and some are medium length. And these lengths can have important implications for traders. In fact, candlestick patterns can indicate many things to traders, including when there might be possible trend reversals as well as bearish or bullish patterns.

crypto, parts of crypto candlesticks, crypto trading
Size matters when it comes to candlesticks.

Taking a look at the actual visual representation of an individual candlestick will reveal variations, such as a long wick on the top, which can signal to traders that profits are being taken and there might be an imminent sell-off. Conversely, a long wick at the opposite end suggests that investors are buying price drops.

Big (candlestick) bodies can be beautiful if they’re green and have short wicks, which denotes bullish sentiment, while similar bodies in red denote the inverse, namely bearish sentiment. And when the wicks are long and the body is short, we’re in a situation in which there is a lack of control on the part of buyers and sellers.

crypto, parts of crypto candlesticks, crypto trading

When seen as a whole, traders will frequently describe the relationship between the various parts of a candlestick as open-high-low-close values, with a grouping of such candlesticks commonly referred to as an OHLC chart.

Depending on the chart tools that you use, you might not see red or green, but rather black and white (or even a different combination of colors). In this case, black corresponds to red (downward price movements) and white corresponds to green (upward price movements).

Japense candlestick chart, crypto, black and white trading chart, candlesticks
Japanese candlestick black-and-white chart showing downtrend market on black background.

Fundamentally, candlesticks on a crypto chart depict whether as well as the degree to which price movements have been (and perhaps will be) positive or negative within a specified timeframe. With this basic insight in mind, along with the actual components of a candlestick and what the variations in their size, shape, and color represent, we can now move on to consider  a slightly more in-depth look at the technical analysis indicators used  in candlestick charts.

Technical Analysis and Crypto Charts

Identifying market trends, predicting future price movements, and establishing ideal buying and selling opportunities, among other things, are all part of what is known as technical analysis. The point here is to analyze historical data in order to project future price movements, and traders accomplish this through the use of technical indicators.

Since there are literally thousands of technical indicators, it would be impossible to summarize them in any meaningful way. Rather, we can situate them within a number of broader categories, namely trend indicators, momentum indicators, volume indicators, volatility indicators, and support and resistance indicators.

Given their descriptive names, it’s quite easy to discern the respective purposes of the indicators within each category.

  • Trend indicators can provide the trader with insight into whether there is an uptrend, downtrend, or non-trending market, i.e., if the market is bullish, bearish, or in a sideways phase.
  • Momentum indicators can reveal whether an asset is overbought or oversold.
  • Volume indicators are used to pinpoint the volume (or level of activity) within the market, which can suggest whether prices will increase or decrease depending on the type of market.
  • Volatility indicators measure the extent to which a token moves away from its mean price, with low volatility suggesting quiet price and predictable swings, while high volatility suggests the opposite.
  • Support and resistance indicators can be used to determine when there will be a pause in a token’s price or a reversal of a trend.

Crypto traders will chart their analysis visually, with timeframes and the type of indicator comprising the two main variables.

Identifying Crypto Chart Patterns

Having made it this far in the article, you can now identify, differentiate, and understand the various elements of a crypto chart. The next step is recognizing that the collection of candlesticks is telling you, the trader, a story. And understanding this story being told by the various candlesticks in terms of how a market or asset might move in terms of its price is merely the work of crypto chart analysis.

There are a number of common chart and candlestick patterns that you’ll often encounter online or in books, and at times it can be good to know what they mean. These include things such as “hammer” (bullish), “hanging man” (bearish), and the so-called “shooting star” candlestick (bearish). Whether or not they provide valuable trading insights is another question entirely, though.

Rather than simply replicating these commonly-cited, cookie-cutter patterns, let’s look into two key trading concepts and consider what they might actually mean for your trading strategy.

Support and resistance levels

Support and resistance levels are some of the most widely used concepts in any type of trading, whether crypto, stocks, or otherwise. As you might guess, “support” simply refers to the level at which a cryptocurrency maintains its price thereby preventing it from falling in price. Some traders describe the support level as the “floor.”

crypto, support and resistance, price breakout, Binance
The rectangular area in maroon shows the price bouncing around in the support region before breaking out. (Source: Binance)

Conversely, resistance levels refer to the level at which the price of a cryptocurrency cannot move beyond. Some traders describe the resistance level as the “ceiling.”

crypto, support and resistance, price breakout, Binance
In this case, the price cannot break through the resistance level, as represented by the rectangular area in maroon at the top. (Source: Binance)

Traders will often pinpoint support and resistance levels using trendlines, which are simply the solid lines on a crypto chart that connect an asset’s prices. An uptrend or ascending line indicates that demand is higher than supply, while a downtrend or descending line suggests the opposite. Traders will often make use of multiple trendlines in an attempt to spot support and resistance levels.

crypto, support and resistance, trendlines, Binance
The use of multiple trendlines to spot support and resistance levels. (Source: Binance)

The question remains: how can you identify support and resistance levels. Two words: moving averages. One of the most common types of technical indicators, a moving average (MA) provides an average price for a particular crypto during a given period of time.

crypto, 200-week moving average, Binance, trading chart
An illustration of a 200-week moving average acting as support for the price of Bitcoin (Source: Binance).

Common periods of time range from 10- and 20-day moving averages to 100- and 200-day moving averages. (In our Binance trading interface above, we can recall the three moving averages used: 7, 25, and 99.) There are also simple moving averages (SMA) and exponential moving averages (EMA) as well.

Do Crypto Charts Have Drawbacks?

As useful and as necessary as crypto graphs can be for traders of all trading levels, they do have certain limitations.

There can be a tendency, for example, to think that charts will predict future price movements or trends, when we’re only ever dealing with possibilities. It’s not that something will happen, but rather that it might happen. In other words, reading candlesticks and charts is a way that traders attempt to forecast the future, but by no means is it an exact science.

There is also a tendency among some traders to over-indulge in candlesticks and charts. The more indicators you use, the better, right? Not necessarily—in fact, it can lead to the exact opposite. Too many indicators and too many candlestick patterns can muddy the waters, giving you a lot of information, which, at times, can be contradictory and, quite frankly, unprofessional.

You may have even seen a popular meme about the inefficacy of overloading on chart patterns (hint: it’s the very same one used at the beginning of this article).

Bitcoin meme, crypto charts, candlesticks, price prediciton
Bitcoin price prediction? It's anyone's guess.

Learn charts. Read charts. Use charts. But recognize their purposes, values, and limitations, and then incorporate them into your overarching trading strategy with these advantages and disadvantages in mind.

Final Thoughts on Crypto Chart Analysis

Final thoughts on crypto chart analysis? There are no final thoughts. Crypto charts can be as complicated and sophisticated or as simple as needed, depending on a trader’s levels of knowledge, experience, and expertise.

However, we can say one thing with a fair degree of certainty. Whereas you likely started this article unsure of how to read crypto charts, you should now have a much better understanding of how to analyze crypto charts and, more importantly, how to understand crypto charts.

Rent the Most Advanced Trading Bots

Trality’s Marketplace offers a range of bots created by industry experts—all tailored to your investment goals to help you minimize risk and increase profits in any market condition!

When combined with automated crypto trading bots, the ability to read crypto charts will differentiate you from the vast majority of traders in the market, enabling you to trade consistently and methodically while simultaneously anticipating price movements, trends, reversals, and levels of support and resistance, among other things.

In other words, you’ll be a far more strategic trader, and there’s no better friend in trading than a finely-tuned strategy.