How to Read Crypto Charts

Crypto charts are indispensable tools for traders looking to understand how crypto prices change over time. They help you strategize and spot trading opportunities by analyzing historical and current price data of a cryptocurrency, a process known as technical analysis.

Technical analysis has its roots in the late 19th century, credited largely to Charles Dow, the co-founder of Dow Jones & Company. This methodology emphasizes the importance of price movements, asserting that they follow identifiable trends that traders can predict and capitalize.

Over the decades, technical analysis has evolved and expanded, making it applicable across various markets, including cryptocurrencies. The principles that began with stock market charts now assist crypto traders in deciphering digital asset movements.

In this blog, we will learn more about technical analysis, which eventually will help understand crypto charts and make informed decisions based on predictive insights gleaned from analyzing them.

Parts of a crypto chart

Understanding the components of a cryptocurrency chart can help provide critical insights into market dynamics and guide your trading decisions.

Trading pair

A trading pair represents two currencies that are being traded against each other. In crypto, this typically involves a cryptocurrency and a fiat currency or another crypto. For instance, in the trading pair BTC/USD, Bitcoin is being traded against the US Dollar. The first currency (BTC) is the base currency, which indicates how much of the second currency (USD) is needed to purchase one unit of the first.

Trading pairs help you to learn how values are expressed in the market and inform your strategies on whether to buy or sell a particular cryptocurrency based on its performance relative to another currency. For example, if you are looking at the ETH/BTC trading pair and notice that ETH is gaining strength against BTC, it might be a signal to trade ETH for BTC, with the expectation that the value of ETH will continue to rise against BTC. Alternatively, you might open a long and short position on two trading pairs with high correlation.

Current price

Current price represents the latest price the cryptocurrency was traded, reflecting the most up-to-date valuation of the cryptocurrency in the market. which is essential for executing timely trades.

For example, if an investor notices that the current price of ETH against the US dollar (ETH/USD) is much lower than usual due to a temporary market panic, they might decide it’s a good opportunity to purchase ETH, anticipating the price will rebound once the market stabilizes.

High/low

“High/low” indicator records the highest and lowest prices at which a cryptocurrency has traded during a specified period. This metric provides critical insights into the volatility and price range of the asset. For example, a big difference between the high and low prices within a short period suggests high volatility, indicating that the cryptocurrency might be experiencing a surge in trading activity.

Take, for instance, the BTC/USD trading pair. If the high of the day is $40,000 and the low is $35,000, it shows a $5,000 price fluctuation within a single trading day. This information is vital for traders who might be looking to capitalize on price swings or for investors aiming to buy at dips and sell at peaks.

24-hour volume

The 24-hour volume on a cryptocurrency chart represents the total number of coins traded in one day. This indicator not only reflects the liquidity of a cryptocurrency but also signifies market activity and interest during that time frame on a specific symbol.

Unit of time

Unit of time defines the duration each data point represents. For intraday analysis, a trader may choose minutes or hours to capture short-term volatility. Conversely, for longer-term trend assessments, one might select days, weeks, or even months.

The choice of time unit should align with trading strategy goals. For instance, to capture the daily opening and closing price of BTC, setting the chart to a 24-hour timeframe will provide a clear visual of each day’s price action.

Price chart

Price chart provides a graphical depiction of price movements over time, allowing traders to identify trends, patterns, and potential reversal points in the market. Traders utilize price charts to apply various technical analysis tools to make educated predictions about future price movements based on past patterns.

Trading volume

Trading volume represents the total number of coins or tokens that have been traded during a specified period. It provides clues about market strength and potential price movements.

High trading volume generally indicates strong interest in the cryptocurrency, either for buying or selling, and is often associated with big price movements. Conversely, low trading volume suggests fewer participants and can indicate uncertainty or consolidation phases where the price might shift minimally.

Circulating supply

Circulating supply of a cryptocurrency indicates the total number of coins or tokens that are actively available and being traded in the market, and can be used to assess the rarity or abundance of a cryptocurrency, which can impact its value.

For instance, a limited circulating supply can lead to higher prices if demand is strong, similar to the economic principle of scarcity. In contrast, a larger supply can dampen price movements unless accompanied by proportional demand.

For example, Bitcoin’s capped supply of 21 million coins is a fundamental aspect of its economic model. As more Bitcoins are mined and the circulating supply approaches this cap, many anticipate its value might increase due to its limited supply.

Fully diluted market capitalization

Fully diluted market capitalization represents the total value of a cryptocurrency if all its potential supply were in circulation and priced at the current market rate. This calculation gives perspective on a cryptocurrency’s market value, factoring in all coins or tokens that will ever exist.

For instance, if a new cryptocurrency has a current circulating supply of 1 million coins priced at $10 each, its standard market capitalization would be $10 million. However, if the maximum supply is 10 million coins, the fully diluted market capitalization would be $100 million. This disparity highlights the potential expansion of the market cap as more tokens become available, affecting the supply-demand dynamics and potentially influencing the price.

Types of chart trends

Identifying chart trends helps traders make informed decisions based on the potential direction of asset prices.

Primary trend

A primary trend refers to a long-term market direction sustained over several months or years, such as a bull market or bear market. This trend consists of an accumulation phase, markup phase, and distribution phase. It also sets the context within which shorter-term trends and price movements occur, and often reflects the broader economic, political, or technological influences affecting the market.

For example, if Bitcoin is in a primary uptrend, this might be due to long-term factors such as increased adoption, favorable regulatory changes, or major technological advancements. During this period, even if there are days or weeks of price declines, the general movement is upward.

Here’s how to spot a primary trend:

Look for a series of higher highs and higher lows in an uptrend. For example, Bitcoin’s price hits a high of $60,000, pulls back to $58,000, then climbs to a new high of $62,000, and pulls back slightly to $60,500. This sequence of higher highs and higher lows confirms an uptrend.
Watch for lower lows and lower highs. For example, if Bitcoin’s price drops to $60,000, rallies to $61,000, then falls to a new low of $59,000, and rebounds to $60,000, the pattern of lower highs and lower lows confirms a downtrend.

Secondary Trend

Secondary trends are short-term and small movements in price that occur within a primary market trend, such as a price rally or pullback. These trends are crucial for traders to optimize their positions—such as buying during dips in an overall uptrend or selling during brief rallies in a downtrend.

Imagine a scenario where Bitcoin is in a primary uptrend, consistently setting higher highs and higher lows over several months. Suddenly, due to short-term market sentiments or external events, Bitcoin experiences a pullback, dropping in price but not low enough to break its long-established upward pattern. This pullback is a secondary trend, which might be seen as an opportunity to buy Bitcoin at a lower price before it potentially resumes its primary uptrend.

Tertiary trend

A tertiary trend, commonly referred to as a “minor trend,” involves short-lived and small fluctuations in prices that occur within the context of secondary trends. These can be brief spikes or dips in price that are influenced by immediate market reactions to news events, market rumors, or high volume trades by whales.

Consider a situation where ETH is experiencing a secondary downtrend during a broader primary uptrend. Within this downtrend, there might be sudden, brief spikes in price—tertiary trends—triggered by positive news like successful software upgrades or regulatory approvals. A trader observing these patterns could take advantage of these short-lived rallies to sell high and then buy back at a lower price, to potentially maximize returns within a very short window.

Types of chart patterns

Chart patterns serve as a roadmap, offering clues about potential price movements and trend continuations or reversals.

Reversal chart pattern

A reversal chart pattern indicates a potential end of an existing trend and the beginning of a new trend in the opposite direction. These patterns indicate substantial shifts in market sentiment, offering traders opportunities to enter or exit trades at potentially optimal times. Here are the key factors to determine if a chart is exhibiting a reversal pattern:

Prior Trend: This means you need to see a clear upward or downward trend in the price before the pattern forms.
Volume: In a head and shoulders formation, for example, volume typically diminishes as the pattern forms and increases as the price breaks through the neckline, confirming a trend reversal.
Breakout/Breakdown: The pattern is confirmed when the price breaks out of the pattern boundary (like the neckline in head and shoulders or the resistance/support level in double tops and bottoms). This breakout should be on higher volume to provide validation of the pattern.
Price Target: After confirmation, traders often calculate a potential price target by measuring the height of the pattern and projecting it from the breakout point. This can indicate how much the price might move following the breakout.
Formation Shape: Each reversal pattern has a characteristic shape like:
- Head and Shoulders: This consists of three peaks, with the middle peak (head) being the highest and the two side peaks (shoulders) at a lower level. (more info in the example below)
- Double Top: Two distinct peaks at approximately the same price level, indicating resistance the asset struggles to break through.
- Double Bottom: Two distinct troughs at approximately the same price level, showing support levels where the price fails to drop further.
- Inverse Head and Shoulders: A mirror image of the head and shoulders, this pattern occurs after a downtrend and signals a potential upward reversal.

Example of the “Head and Shoulders” formation

This pattern appears at the end of an uptrend and is characterized by three peaks: the middle peak (head) being the highest and the two outside peaks (shoulders) being lower and roughly equal. The completion of this pattern is marked by the price falling below the support level—known as the neckline—indicating a likely reversal from an uptrend to a downtrend.

If a trader observes a Head and Shoulders pattern forming on the Bitcoin chart, they might consider selling their Bitcoin as the price breaks below the neckline, anticipating a forthcoming drop. Conversely, an inverse Head and Shoulders pattern during a downtrend suggests a potential shift to an uptrend, signaling a buying opportunity.

Continuation chart pattern

A continuation chart pattern occurs during a pause in the prevailing trend of an asset’s price, suggesting that once the period of sideways consolidation is complete, the prior trend is likely to resume.

These patterns are integral to technical analysis as they provide confidence to traders that the ongoing trend will continue, allowing them to re-enter or maintain their positions accordingly. To determine if a chart is exhibiting a continuation pattern, several key factors need to be considered:

Existing trend: A continuation pattern forms only within an existing trend. The pattern represents a pause or consolidation in the ongoing trend, which can be either bullish or bearish. It means: during a continuation pattern, the price of the asset temporarily stops following its previous strong upward (bullish) or downward (bearish) trend. Instead, it enters a phase where the price movements are less pronounced and typically restricted within a certain range.
Duration: Continuation patterns are generally short-term and last from a few weeks to a few months. The duration of the pattern can vary based on the timeframe being analyzed, but they are typically shorter than reversal patterns.
Volume: Volume tends to decrease during the formation of the continuation pattern, indicating reduced trading activity as the market consolidates. An increase in volume is expected as the price breaks out of the pattern, confirming the resumption of the trend.
Pattern formation: Each continuation pattern has a specific shape:
- Triangles: These are formed by converging trend lines on a price chart where the price moves within a narrower range. They can be ascending (higher lows), descending (lower highs), or symmetrical (converging highs and lows).
- Rectangles: These patterns occur where the price moves between parallel support and resistance levels, indicating a consolidation phase.
- Flags and Pennants: These are short, sharp price movements followed by a small rectangular or triangular consolidation before continuing in the direction of the initial trend.

Example of “Flag” pattern formation:

The “Flag” pattern is a popular example of a continuation pattern. It appears as a small, rectangular shape that slopes against the prevailing trend direction, supported by parallel trend lines acting as resistance and support. This pattern represents a consolidation period followed by a breakout in the direction of the trend.

For instance, if the ETH price chart shows a bullish flag during an uptrend, the price is consolidating briefly before likely continuing its upward movement. Traders can interpret this as a signal to possibly add to their long positions once the price breaks above the upper trendline of the flag formation.

Bilateral chart pattern

Bilateral chart patterns are formations on price charts that signal potential price breakouts in either an upward or downward direction, without a clear indication as to which way it will break. The key relevance of bilateral patterns lies in their ability to prepare traders for multiple outcomes. Unlike continuation or reversal patterns that suggest a more definite market direction, bilateral patterns require traders to set up strategies that can capitalize on movements in any direction.

The “Symmetrical Triangle” is a common example of a bilateral pattern.

This pattern is formed when the price of an asset consolidates between converging support and resistance lines, leading to a convergence at an apex point. The symmetrical triangle does not imply a continuation or reversal by itself but suggests that significant price movements might be on the horizon once a breakout occurs.

For instance, if Bitcoin’s price chart forms a symmetrical triangle during a period of high market uncertainty, traders should prepare for both potential upward or downward movements. This might involve setting stop-loss orders both above and below the triangle to manage risk effectively, regardless of the direction the price eventually takes.

Types of crypto charts

Candlestick chart

A candlestick chart is a detailed chart type which displays the high, low, open, and close prices of an asset for a specific period. It is called a “candlestick” because its markers resemble candles, with a wide body representing the range between the opening and closing prices and wicks indicating the highest and lowest prices during the trading session.

For traders, each candle and its shape provide clues. For example, a candle with a long lower wick and a small body at the top suggests buying pressure following an initial sell-off, potentially indicating a reversal or bullish sentiment. Conversely, a candle with a long upper wick and a small lower body might suggest that selling pressure overcame buying pressure after an initial increase, indicating bearish sentiment.

Consider a day in which Bitcoin opens at $60,000 and closes at $61,000. Throughout the day, the price drops to a low of $60,500 and peaks at a high of $61,500. On a candlestick chart, this day’s trading would appear as a single candle with a body that stretches from $60,000 to $61,000 and wicks extending to the high and low of the day. If the close is higher than the open, the candle might be colored green, indicating a price increase; conversely, a red candle would depict a price decrease.

Line chart

A line chart connects single price points for an asset over a defined period with a straight line. Typically, line charts represent closing prices of the asset during trading sessions, although they can also reflect open, high, or low prices according to the trader’s needs.

ETH one-month chart

Line charts are ideal for identifying broader trends over time and are less cluttered than more complex chart types, such as candlestick charts, making them suitable for quick assessments of market direction.

Suppose that in a month, there were large price fluctuations day-to-day, but the general trend was upwards. The line chart would smooth out these fluctuations and provide a clear visual of the upward trajectory, helping traders and investors see past the noise of short-term volatility to focus on the longer-term trend.

Bar chart (OHLC Chart)

A bar chart, or an Open-High-Low-Close (OHLC) chart, offers a comprehensive view of the price movements of an asset within a specific period. Each bar in the chart provides four key pieces of information: the (O)pening price at the start of the period, the (H)ighest price during the period, the (L)owest price, and the (C)losing price at the end of the period. The vertical bar displays the total trading range (from the low to the high), while small horizontal ticks attached to the bar indicate the opening and closing prices. The left tick marks the open, and the right tick marks the close.

For traders, each bar is a snapshot of market sentiment and activity. For instance, a bar where the closing tick is higher than the opening tick shows buying strength, as the asset’s price closed higher than it opened, suggesting bullish sentiment.

Conversely, if the closing tick is below the opening tick, it indicates that selling pressure dominated the session, reflecting bearish sentiment.

Consider a day when ETH opens at $1,800, reaches a high of $1,850, a low of $1,750, and closes at $1,825. On a bar chart, this day’s trading would be represented by a single bar with a high at $1,850 and a low at $1,750. The opening price would be marked by a left horizontal tick at $1,800, and the closing price by a right horizontal tick at $1,825. If the close is above the open, it can be a sign of a bullish day, typically indicated by a green bar; a red bar would indicate a bearish day if the close is below the open.

Best indicators of crypto trading

Here are three key indicators that every crypto trader should know.

Moving Average

A Moving Average (MA) is a trend-following indicator that averages out the price data over a specific number of time periods, resulting in a single, smooth line. This helps to eliminate “noise” from random price fluctuations. It’s calculated by adding up the closing prices of an asset over a set number of time periods, then dividing by the number of periods. Consider Bitcoin’s 50-day and 200-day MAs. The 50-day MA represents the average closing price over the last 50 days, while the 200-day MA reflects the average over the last 200 days.

Common patterns

Golden Cross: A Golden Cross occurs when the 50-day MA (short-term) crosses above the 200-day MA (long-term). This event is viewed as bullish, suggesting that the asset’s price is on an upward trend and may continue to rise.
Death Cross: Conversely, a Death Cross happens when the 50-day MA falls below the 200-day MA. It’s considered a bearish signal, implying that the asset may be entering a downtrend.

Relative Strength Index

The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. It operates on a scale from 0 to 100. RSI values over 70 typically indicate that an asset is becoming overbought or overvalued and may be primed for a price reversal or corrective pullback. Conversely, an RSI reading under 30 usually signals an oversold or undervalued condition, suggesting a potential upward turn in price.

Imagine Bitcoin’s RSI reaches 80, which is well above the standard overbought threshold of 70. This high RSI value suggests that Bitcoin might be overbought, meaning that the price could soon decline as traders begin to sell off their positions.
Alternatively, if Bitcoin’s RSI drops to 20, it indicates that it might be oversold. This situation could be an opportune time for traders to buy, anticipating a potential price increase as market sentiment shifts.

Bollinger Bands

Bollinger Bands consist of three lines: the middle band is a simple moving average (SMA) typically set to 20 periods, and two outer bands that are standard deviations away from the middle SMA.

The standard setting for the outer bands is two standard deviations, but this can be adjusted for more sensitivity or specificity. These bands expand and contract based on market volatility. Wider bands suggest higher volatility, while narrower bands indicate lower volatility.

Consider a scenario where Bitcoin’s price fluctuates intensely, the Bollinger Bands will widen, reflecting increased market volatility. This can alert traders to expect larger price movements and potentially prepare for a buying or selling opportunity.
If Bitcoin’s price touches or breaches the upper Bollinger Band, it might be considered overbought, suggesting a potential sell signal. Conversely, if the price dips below the lower band, it might be oversold, indicating a possible buy signal.

Tenets of Dow Theory

The Dow Theory includes some of the foundational concepts of technical analysis and are particularly relevant to understanding market movements in cryptocurrency trading. Here are the core tenets of Dow Theory:

Market discounts everything: Dow Theory posits that all available information is already reflected in prices. This includes fundamentals, current news, predictions, and traders sentiment.
Three market phases of a trend: The market phases—accumulation, public participation, and distribution—help traders identify when a market is gearing up for a rally, when it is in full swing, and when it is setting up for a possible reversal.
Market has three trends: The market undergoes a primary (major) long-term trend, secondary trend that lasts for a few months, and a tertiary (minor) short-term trend.
Trends are confirmed by Indices: Signals on one index should correspond with the signals on other indices, to determine if a new trend has started. While more applicable to traditional markets where indices like the Dow Jones Industrial Average or the Transportation Index might confirm each other’s movements, in cryptocurrency, this could be adapted to how different segments of the market (like altcoins and Bitcoins) might confirm each other’s trend movements.
Volume confirms trends: To determine the strength of a trend, the volume should increase along with a rise in price movements, and decrease during pullbacks. High volume is a key indicator that a given price move will be sustained, providing a reliable signal for the strength behind market moves.
Trends continue until a clear reversal: Markets move in identifiable trends that persist until clear signals indicate they have ended.

Using Dow theory for buy and sell signals

Identify the phase

Buy signal: According to Dow Theory, a buy signal is indicated during the early stages of the accumulation phase. This is when the price has stopped falling, and the market begins to stabilize, showing early signs of a trend reversal upward.
Sell signal: A sell signal emerges when the increased volume does not result in significant upward price movement, suggesting that the upward trend is losing momentum and a reversal is imminent.

2. Analyze trend confirmation

Buy signal: A buy signal arises when there is a clear upward trend breakout supported by increasing volume. For example, a consistent series of higher highs and higher lows along with rising trading volume indicates a stronger trend and signal a stronger buy opportunity.
Sell signal: Identify a sell signal by identifying a downward trend breakout, where key support levels are broken with increased volume. This indicates that the market sentiment is turning negative, and lower prices may follow.

3. Use volume for verification of a trend

Buy signal: An ideal buy scenario is when volume increases as prices trend upward, indicating strong buyer interest and support for the continuation of the trend.
Sell signal: A sell signal occurs if the price starts to fall and volume increases, suggesting that selling pressure is mounting and could drive prices lower.

4. Use of secondary technical indicators

Buy signal: Look for supportive signals from other technical indicators like moving averages (e.g., a shorter-term MA crossing above a longer-term moving average).
Sell signal: Secondary indicators such as moving averages (e.g., a shorter-term MA crossing below a longer-term moving average) can provide additional confirmation.

5. Cross-market confirmation

Buy signal: A bullish trend in cryptocurrencies like Bitcoin, accompanied by similar movements in altcoins, reflect a market-wide upward trend, strengthening the buy signal.
Sell signal: Conversely, bearish trends in major market leaders followed by similar patterns in other segments of the market indicate a stronger sell signal across the cryptocurrency sector.

How to Read Crypto Charts