Crypto Trading: How to Study Charts to Find Trends
As of this writing, the trending phrase in the crypto sphere is “The entire crypto market is bleeding.” Obviously, the dip spells a drawback to many new investors. On the other hand, it is an opportunity to trade wisely. Learning how to study charts is one way to find the trends in the crypto market, leading to successful trading.
Why Study Charts?
Even in a bloody market, investors believe that the crypto market will wake up from the slumber and the market cap of the digital assets will increase in value over time. With that mindset, many investors embark on the goal of collecting as many coins as possible, at the right prices, to build a concrete and diversified portfolio of crypto assets that they can hold.
In order to reach there, a trader must “buy the lows” and let the profits run. It is for that reason that a trader must study crypto charts closely to know which coins to grab. Experts recommend entering and exiting positions slowly but surely, especially when the lows get lower or the highs get higher. In addition, traders should refrain from buying or selling in emotional or reactionary swoops. Similarly, you can keep your fees down and give your bets an opportunity to perform by trading no more than five times a week.
You can tell whether a stock price is overvalued or undervalued by focusing on the moving averages. Moving averages are on stock charts to help level up volatility and to point out the direction a stock may be trending. When you study charts closely, you will realize that the red line in a stock chart indicates short-term moving averages while a black line denotes the long-term averages. Usually, the red line crosses the black line, a situation sometimes followed by an accelerated price movement. Equally important are the spikes in trade volume, which may be an indication of strong sentiments of fear in the market.
Other Strategies to Predict Trends
In addition to studying crypto charts, you can also explore other strategies to predict trends. These include:
- Head and Shoulders
- Trend Lines
- Support and Resistance patterns
You can learn about each of these strategies here.
Price Chart Illustration
On the GDAX dashboard, you can find a price chart that resembles the one below. In the same viewpoint, you can be able to see four other sections in the same viewpoint.
The Price Chart: This indicates historical prices and volume data in two views: you can see a line chart and candlestick chart covering various historical periods
The Depth Chart: This is right below the price chart. It shows a detailed visual image of the bid and asks prices over a range of multiple prices. It is possible to increase or reduce the price range for the chart by using the plus or minus buttons available at the top of the chart. The prices you see in the middle of the chart indicate the midpoint price between the best bid and ask prices. If you move the cursor over the prices, you will be able to select a price that you can work with. By clicking the price, you’ll be able to fill in the buy/sell price automatically. The chart enables you to see how close buyers are from sellers in their ask or bid prices. A bigger space under the curve denotes more bids for a particular price.
The Order Book: This chart gives you a live view of the open orders on Coinbase exchange. They call it an order ladder, in which three columns show market size, price, and order size of each order. If you click on any row, it will fill the buy and sell price automatically. This is available on the left sidebar. Once you confirm your order, it shows up on the order ladder immediately so it can be filled.
The Open Orders section: this shows traders the status of each of their open orders. It also shows filled orders, making it easier for traders to cancel any order at any time.
The Trade History: This is available on the right sidebar. It shows all completed orders
On the upper left side of the chart, you can find a drop-down icon to change the currency. It provides nine different options. The most common views will be:
- BTC/USD (Bitcoin)
- ETH/USD (Ethereum)
- LTC/USD (Litecoin)
The key objective of the charts is to verify the general direction of the currency over a specified period. In addition, the charts determine the prices at which traders would be willing to buy or sell the currency before the market takes a dip.
Work with a Specific Timeframe
As a trader, you should specify a timeframe for your investment. This could be short term 7-14 days, medium term 1-2 months, or long-term 6-12 months. Experts do not recommend trading on shorter periods of less than seven days unless you have access to margin, which obviously you don’t. You may also trade for shorter periods if you have large amounts of money to play around with; otherwise, you can incur higher fees relative to the returns.
By studying crypto charts carefully, you will learn how to cast your net wisely. No trader wants to lose, and with the tips mentioned here, you can be able to make a successful crypto trade.
Images courtesy of Google and GDAX