Charting knowledge is essential if you want to start trading in cryptos. Most of the trading platforms have basic charts by default, and you should be using them before you make a trade. But if you want more options, you can use a free site like Trading View. If you want to go even further, you can use alternatives like Coinigy which lets you make trades across multiple platforms right from the charting site.
Reading candlestick graphs
Candlestick chart is the most commonly used type of chart and easy to understand. Each candle depicts the price action of the crypto, including opening price, closing price, lowest price and highest price. Candlestick graph can be viewed in various timeframes, and each timeframe represents a candle.
The green and red candles are Bullish and Bearish candlestick respectively. In a bullish candlestick, the bottom part is the opening price and the top part is the closing price. In a Bearish candle, the top part is the opening price and bottom part is the closing price.
Candlestick charts help you understand past performances and helps to make better predictions on performance of the crypto. For example, you can spot time-zones in which a coin performs better and use that information to make a better trades.
Trading volume is another important aspect while trading to understand how much buying or selling was done in a particular period. This is usually shown below the candlestick for the respective period. In a Bullish candle, the volume of purchase is shown in green and in a bearish candle the volume of sell is shown in red.
All the exchanges have an orderbook where other’s buy and sell orders are visible. This will give you a better idea of what to expect with a crypto and predict it’s performance. Buy and sell walls are easy to spot in an order book.
If there is a huge sell wall, it will be difficult for the crypto to go above that price point and if there is a huge buy wall, the changes of a crypto going below that point is low. One instance where you can use this is buy in between, set sell order just below a sell wall and stop-loss just below a buy wall. This lets you determine where to sell and still offer a decent safety net.
Support and Resistance
Support and Resistance make use of the candlestick graph. It is the price point where a coin stops going up/down and goes the reverse.
Support is the point where a coin will stop falling further and bounce back. Resistance is the opposite where a coin will stop going up and start falling down. Support and Resistance are visualised manually on a candlestick graph. You’ll have to use a third party app like TradingView and draw your own Support Resistance. Support and resistance can be there for both Sideways market and Bearish, Bullish markets.
Support and resistance are significant while trading. Some people like to buy at support and sell at resistance which is usually safe to do. Another common practice is to set buy orders just above a resistance. The market understand is that if a coin breaks it’s resistance, a further upward movement is expected. Similarly, stop losses are set just below supports since if a coin goes below the support zone, a further downward movement is expected.
Fundamental analysis and Technical Analysis
Fundamental Analysis is a common term used in the stock market analysis when an investor is planning on investing in a stock long term. It involves understanding various aspects of a business and ignoring daily price movements. You try to predict the value of a company in the long run. The same concept can be used while trading cryptos since most of them are tokens issued by companies during ICOs. A Blockchain company with a great team and a great product with mass appeal down the product might not be strong now, but it could be strong in a few years. You can try to spot these trends using fundamental analysis.
Technical analysis is dealing with concrete numbers and facts. It is the process of spotting patterns on a candlestick graph and predicting price movement. It involves the use of support, resistance, order books and many more indicators. If you want to learn technical analysis in detail, check out Technical Analysis for Dummies.
Both Fundamental Analysis and Technical Analysis are not fool-proof and do not always work. But your quality of trades and profits will be much better when you understand them.