The cryptocurrency world is full of buzzwords to wrap your head around. As if the buzzwords are not enough, there are confusing red and green charts to monitor from time to time. These charts are called candlestick charts and analyzing them will help you see trends and patterns in crypto. This analysis is known as technical analysis and learning how to read crypto charts is the way forward.

The crazy thing is that once you know what the symbols on the charts mean, it’s no longer so hard to read. This post won’t make you a pro chart analyst. But it’ll get you started on your journey. Let’s dive in.

What are Candlestick Charts and Where Did They Come From? 

Hold onto your hats, history buffs, because we’re heading back to the 1700s. Picture this: Munehisa Homma, a Japanese rice trader (and part-time finance wizard), was tired of keeping track of his rice prices on a chalkboard. So, what did he do? He invented the candlestick chart!

It has four essential parts:

  • The Opening price – the price of rice at the start of the hour, day, or specific period.
  • The High – the highest price of rice during the same period.
  • The Closing price – the price of rice at the end of a specific period 
  • The Low price – the lowest price of rice within that period. 

These “candles” don’t just sit around looking pretty—they give us the details on price movements in a given trading period.

Fast forward to now, and guess what? These candlestick charts are the gold standard of financial markets — everybody’s using them! So, thanks to our rice trading friend Munehisa, we’ve got a lit (pun intended) way to visualize prices and do technical analysis in crypto trading. And you thought history was boring!

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What is Technical Analysis in Crypto?

In crypto, technical analysis means looking at market data to decide the best time to buy or sell crypto. This involves studying price movements and patterns using special crypto charts known as candlestick charts – which are usually available on crypto exchanges.  

Let’s say you’re trying to find discounts and promos in restaurants around you so that you know the best time to visit. A great way to do that would be to look at things like restaurant traffic, past promos, trends and how they behave around specific holidays. In this case, that would mean that you’re doing a technical analysis of these restaurants. 

Bull and Bear Markets 

Trend analysis is like your secret decoder ring for understanding the mysterious languages of bull and bear markets. It gives traders and investors the power to see into the future (well, sort of) by decoding the market’s overall vibe. Once you’ve cracked the code, you can make savvy investment moves. Let’s break down how trend analysis works in both bull and bear markets.

Bull Market

Picture a headstrong bull charging ahead – that’s your bull market. It’s a non-stop party of rising crypto prices, fueled by investor confidence, optimism, and overall good vibes. When everyone wants a piece of the pie (more demand than supply), prices keep climbing. By spotting higher peaks on the price chart, trend analysis helps you identify the beginning and continuation of a bull market. Traders can prep for more price surges, finding chances to buyand profit.

Learn More: 4 Ways to Prepare for a Crypto Bull Market

Bear Market 

Now imagine a bear, lazily stumbling into hibernation – that’s your bear market. It’s a gloomy phase of dropping crypto prices, pessimism, shaky investor confidence, and overall market blues. When there’s more crypto than anyone wants (more supply than demand), prices take a nosedive. Trend analysis helps uncover signs of a bear market and how long it could last by pointing out lower peaks and lower troughs on the price chart. Traders can then prepare for more price drops.

Parts of a Crypto Trading Chart

So, you want to dive into the crypto trading sea? Well, understanding the charts is as essential as knowing how to swim! These charts are like a treasure map, showing you where X marks the spot. Let’s break down these map elements.

1. Trading Pair: Think of these as dance partners at a crypto party (e.g., BTC/ETH or BTC/USD). The first crypto leading the dance is the base currency, and the second one being twirled around is the quoted currency.

Examples of trading pairs on Quidax

2. Current Price, Mark Price, and Last Traded Price: The current price is the going rate for buyers and sellers, kind of like pricing foodstuff at a market. The mark price, or fair price, is like the sticker price – it’s the price the seller first tells you before you start pricing it. The last traded price is how much the last person bought it for.

3. Time Unit: This is the time interval displayed on the chart, like watching the minute, hour, or day hand on a clock.

4. 24-Hour Volume: This shows how much of the trading pair has changed hands in the last 24 hours, like counting how many people passed through a door in a day.

5. High/Low: These are the highest and lowest prices that the trading pair has hit during a specific time, like the crests and troughs of a wave.

6. Price Chart: This is a visual timeline of the trading pair’s price movements, like tracking a rollercoaster’s ups and downs.

7. Trading Volume: This shows the total amount of the trading pair traded in a specific period, like measuring the water flowing through a pipe.

8. Limit Order: This is when a trader sets the highest or lowest price they’ll buy or sell at, like setting a budget before going shopping.

9. Stop-Loss: This is an order to automatically sell your crypto when the price drops to a certain level, like a safety net.

How to Read a Crypto Chart: Candlestick Basics

Each candlestick on the chart is like a mini-story of price movement. Here’s the plot:

The main body of the candlestick shows the opening and closing prices. A rising price makes a bullish candle, with the opening price at the bottom and closing at the top. A falling price makes a bearish candle, with the opening price at the top and closing at the bottom.

The length of the candle’s body shows the strength of the price movement. A long body means a big price change, like a tall tale, while a short body means a small price change, like a brief anecdote.

Candlesticks in crypto and what they represent

Usually, a green candle is bullish, showing buying pressure, like a runner moving forward. A red candle is bearish, showing selling pressure, like a runner moving backward. But you can change the jersey colors of your runners according to your taste and strategy.

The wick is the thin line above and below the candle body. The wick above the body shows the highest price reached, like a mountain peak, while the wick below the body shows the lowest price, like a valley floor.

How Time Frames Work in Crypto Charts

When you’re trading anything – stocks, crypto, or even your sibling’s lunch – time is always the important. In the crypto wild west, you’ve got two main rides: the short-term or aggressive trading, where you take a risk for the chance of striking gold. Or the slow and steady long-term investment, where you buy crypto when they’re feeling down (bearish period) and hold onto them like to sell when they’re way up (bullish period).

To survive in this landscape, you need a map, and that’s where Multiple Time Frame Analysis (MFTA) comes in.

What is  Multiple Time Frame Analysis (MFTA)?

MFTA is like using different magnifying glasses to study the market – a big one to see the whole picture, and a small one to spot the tiny details. It means checking out the same crypto coin under different timeframes to spot its moves.

Let’s say you’re a day trader. You can use a daily chart as your big picture, to see how a coin is acting over a 24-hour period. Then you whip out your smaller 4-hour chart to pinpoint the perfect moment to jump in or bow out.

An image showing a 4-hour chart of  DOGE/USDT vs the 24-hour chart if the same pair. It shows how to read crypto charts.
DOGE/USDT 4-hour chart vs 24-hour chart

As a rule of thumb, traders stick to a 1:4 or 1:6 ratio when studying a coin. This is like using a 1-hour chart as your sniper scope for perfect entries, and a 4-hour chart as your binoculars for spotting the overall trend of the coin.

The whole point of this analysis? To pinpoint the perfect moments to jump into and out of the market. Because having a bird’s-eye view and an eagle-eye focus helps you spot trend changes on the fly and nail your trade entry and exit points early.

Learn More: How to Become a Crypto Trader

Things You Should Understand Before Reading Crypto Charts

Crypto charts might look like a foreign language the first time you see them. But if you understand some key concepts, then that foreign language will become a lot more familiar. 

1. Time Periods

Trading is all about timing. Crypto traders use technical analysis to combine different time periods and get a complete picture of the market. One thing you don’t want to do is rely on one indicator, as that can be misleading. In essence, you must understand the following concepts:

2. Resistance and Support

The concepts of resistance and support are, perhaps, the most critical topics in technical analysis, regardless of the market – forex, crypto, stocks, etc. And in the crypto world, both support and resistance work with pricing. 

Support  (also known as the “floor”) refers to a coin’s potential bottom price at a particular time, while resistance (also known as the “ceiling”) refers to the coin’s possible top prices at the same time .

Basically, support is the demand zone, and resistance is the supply zone. And when prices go below the support or above the resistance, there will be a decrease or increase in prices, respectively. 

So if you believe a cryptocurrency price will go up later, it is best to buy (“enter”) at the support level, and when the price reaches what you believe is its resistance level, you sell (“exit”). 

3. Moving Averages

Imagine moving averages (MA) as your crypto trend GPS. This tool draws a line on your crypto chart, showing the average price movements over a certain time. It’s like a smooth road cutting through a city with smaller roads (price changes).

Moving averages help traders see the big picture of market trends without too much information. The fun part? You can set any period you want (months, days, hours, etc).

In the crypto world, we have two types of moving averages – the simple moving average (SMA) and the exponential moving average (EMA).

An image showing a a hands holding a smartphone with the image if a crypto candlestick chart.
Photo by Tima Miroshnichenko

For those who enjoy quick profit, the simple moving average is your go-to. But for the long-haul travelers, the exponential  moving average is your best bet.

4. Relative Strength Index

Think of the Relative Strength Index (RSI) like a game of hot and cold, helping you decide when to jump in or out of a crypto trade. It’s a line that shows up under a crypto’s price chart, and its value can be anywhere from 0 to 100.

In this game, 50 is like “room temperature,” not too hot or cold. A value below 50? That’s “cold,” suggesting the coin’s price might soon heat up. A value above 50 is “hot,” hinting the price might cool down soon.

When the RSI is low, it’s like the coin is on sale so it’s a good time to buy. When the RSI is high, the coin is like a hot item, so it might be a good time to sell.

5. Greed Index 

In the wild west of crypto trading, fear and greed rule.

Think of the crypto fear and greed index as the market’s mood gauge. It uses a bunch of data to gauge the market’s fear and greed levels, scoring it between 0 (totally terrified of trading right now) to 100 (ridiculously greedy and ready to buy any coin in sight).

So, if the index flashes 0, it means the market is shaking and if it’s at 100, the market is greedy.

Take Bitcoin for instance. When its price skyrockets, people scramble to buy, fueled by FOMO (Fear Of Missing Out). In this scenario, the fear index would show a high score, indicating a greed frenzy in the market.

6. Trends 

Predicting crypto prices depends on trend patterns. Markets are always shifting in one direction or another. So to an extent, past patterns in the market can help you anticipate future patterns too. 

But, remember, while riding the trend wave, they’re just best guesses. Trends can pull a U-turn without a moment’s notice.

7. Bitcoin Dominance

Bitcoin is the largest cryptocurrency in the world by market capitalization. It makes up a large part of the overall trading volume in the crypto market. So, it’s no surprise that we usually compare Bitcoin with other cryptocurrencies. 

Bitcoin dominance is basically the slice of the total crypto pie that BTC alone takes up. More often than not, the overall crypto market plays follow the leader with Bitcoin. That’s why when Bitcoin sneezes, the whole crypto market catches a cold.

At the end of the day, Bitcoin wears the pants in the relationship – it calls the shots whether it’s a bull market or bear market. 

How to Calculate a Crypto Market Cap

Cryptocurrency market capitalization (market cap) is simply the way to measure and determine the actual value of a specific cryptocurrency. Market cap is used to find out how big a digital currency is in the market for traders and investors to make smarter decisions. 

Calculating the market cap of a cryptocurrency is simple. Multiply the current price of a coin by the total number of that coin in circulation. 

That is, Market Cap = Current Price * Circulating Supply.

For instance, the current price of Bitcoin is $39,869.20 and its circulating supply is 18,980,250 BTC. So, Bitcoin market cap is 39,869.20*18,980,250 = $756,727,383,300. 

You can do the same calculation for as many coins as you wish to determine their crypto market cap.

Apart from the biggest coins like Bitcoin and Ethereum, crypto market cap can also show the performance of altcoins. 

Ultimately, these information will help you make informed trading and investment decisions about whichever of these smaller cryptocurrencies you own – from Tron (TRX) to Binance Coin (BNB), Litecoin (Ł), Quidax Token (QDX), Shiba Inu (SHIB), etc. 

Final Thoughts

Charts can be fun. It doesn’t have to be so serious. If you use this guide as a manual through your trades, you can keep your knowledge fresh. It’s also a great idea to practice reading candlesticks on your own. You can do that with the Free Quidax Orderbook when you sign up on Quidax.