How to Read Crypto Charts?
Reading crypto charts is a highly useful core skill for anyone who wants to invest in crypto. Whether you are a part-time trader playing around with a little extra money, trying to generate a return, or a serious investor with a portfolio, reading charts is part of the game, and can prove to be a strategic advantage.
When it comes to crypto, or any form of investment for that matter, it’s not wise to put in more money than you can afford to lose. Investments and cryptocurrency prices can go up and down. Past successful performance is no guarantee of future winnings.
Learning to read crypto charts is one of the best ways to understand the markets, and therefore what you are investing in, and is a sensible way to mitigate and manage risk. Ultimately, everyone is looking to maximize returns, and having a clear understanding of how to read crypto charts can help you do that.
What Are Crypto Charts?
Every single investment vehicle, trackable asset, and financial product, whereby investors can put money in and take it out again, comes with charts – a way of recording and analyzing performance over time.
Stocks, shares, bonds, currencies, precious metals, pension funds, futures and arbitrage, oil, and commodities, all have prices and data that is publicly visible, in the form of charts. Everything that is a tradable asset needs charts, so that investors can track how markets are doing. What’s up or down. What looks promising and what doesn’t. When to invest, hold, or take the funds out.
Crypto-based assets also benefit from having charts that track performance. This way everyone can see how thousands of currencies and assets are doing and make sensible investment decisions supported by data.
Image source: Exchangerates
Why Should You Learn to Read Crypto Charts?
Investments of any kind often involve an emotional response similar to that of watching sports or gambling. It’s your money, you want to make more of it. No one wants to lose what they've invested, even if they can afford to.
Investors often go through an emotional rollercoaster, depending on how well or not the cryptocurrencies (or any investment asset/vehicle) are doing on any particular week, day, or even hour.
Hence the advantage of learning to read crypto charts. It’s a way of balancing the emotions with strategic analysis, and an insight of the way cryptocurrencies have moved in the past. You can spot trends more easily, appreciate and accept why a particular crypto is moving a certain way, and whether it’s worth sticking with it, buying more, or taking your money out.
When it comes to reading charts, you won’t always get it right. No one does. Not even Elon Musk or Mike Novogratz, a prominent crypto investor and CEO of Galaxy Investment Partners, get it right all of the time. But grounding yourself in data analysis will give you an advantage over those who invest in a more speculative and emotional way.
Image source: Zipmex
How Does Dow Theory Impact Reading Crypto Charts?
Everyone is drawing from the same data pool, but these sites include more data and in-depth analysis, making them a great place to start and actively monitor the charts.
Now we need to look at one of the main theories that influences how to read crypto charts: the Dow Theory. Named after the Dow Jones, one of the oldest and most prominent price-weighted stock market indexes, comprising 30 of the most influential companies listed on the US stock exchanges (e.g. NYSE, NASDAQ).
Dow Theory was created by Charles H. Dow (1851–1902), the founder of The Wall Street Journal (WSJ) and the Dow Jones and Company.
After Dow’s death, his colleagues and co-founders presented the Dow Theory, based on 255 articles Dow published in the WSJ, as one of the most robust ways of understanding how to read financial charts and data. It’s just as useful and prominent today, built-into the nature and fundamentals of investing across the world.
Let’s take a look at Dow Theory, and how it will help you read crypto charts.
#1: Three main market movement trends
Main movement: Taking a long-term view. Has this crypto generally gone up, stayed pretty static, or gone up and down and back up again? This can be anything from one year to several years, depending on how long a particular currency has been around.
Medium swing: Taking more of a medium-term view now, such as anything from ten days to a few months. Here you assess how the price has generally changed during this period.
Short-term, minor movements vary and changes according to market speculations, and can be as short as only a few hours.
Image source: Masterthecrypto
#2: Three market movement phases
Accumulation. Here we only see a small minority of knowledgeable investors getting involved in either buying or selling crypto. Usually, these are people who have a little extra information or insight. They start buying or selling, but this doesn't change prices much because they're a smaller group of people then the wider pool of investors who aren’t aware of the information or insight these investors have.
Absorption (public perception). But soon enough, that activity starts to move the overall price of a crypto asset, so the wider market of investors starts to take actions similar to those of a smaller, more knowledgeable minority. Prices start to change, buying or selling happens, depending on the direction of movement.
Distribution. After this period of price speculation, investors start to distribute holdings back to the market, and the market and therefore price settles down again, or starts to return to where it was before this happened. And then the cycle can often start over.
#3: Investors discounting the news
The price of everything — stocks, shares, and crypto — no matter what they're grounded in (such as the assets and profits of a multi-billion dollar company, or a new altcoin) reflects the hopes, fears, assumptions, and expectations of everyone who's participating in the market. That includes everyone, whether you simply have a balance of one crypto or another in a wallet, or you are actively buying and selling.
So when it comes to understanding the price of a particular crypto on any given day, all of these collective hopes and fears are wrapped up into every action investors take. As soon as new information comes through, about any cryptocurrency, the market absorbs it and it’s quickly reflected in the price.
#4: Movement trends need to balance
One aspect of Dow Theory doesn't fit quite as neatly when it comes to crypto. And that’s when companies in stock markets balance and benefit from one another. So if shipping companies are performing well, then trucking companies soon will too. Or if property is selling faster, construction companies are going to be performing better. Stock markets that move this way are based on economic fundamentals, rather than purely speculative gain.
However, when it comes to crypto, there are still elements of market fundamentals at play. When the larger cryptocurrencies, such as Bitcoin (BTC) and Ethereum (ETH), perform well, they can influence the movements of a wider range of coins.
#5: Volume confirms trends
Volume is an indicator of price signals. Generally speaking, during an upward movement in the price of any investment asset, the volume goes up. During a downwards trend, the price and trading volume decrease.
#6: Trends continue until new data proves they're over
Dow applied a similar principle to Newton’s first law of motion: once an object is moving it tends not to stop or slow down unless an external force acts upon it. Investment trends, whether bull or bearish, go up or down and keep moving in that direction until new information or new trends start to nudge prices a different way.
Crypto movement timeframes
Timeframes are an essential element that every investor needs to understand. It depends how you invest as to which timeframe is most useful for your investment strategy.
For intra-day traders, whose aim is to buy and sell in a very short period of time and come out with a profit, 15-minute, hourly, 4-hour, and daily charts are the most useful.
Whereas, long-term investors, who buy and hold a cryptocurrency for months or even years, are more interested in looking at longer timescales. They may not check movements on a regular basis either, preferring to take the long view. Either way, it’s always useful to know what you are looking at and looking for when investing in cryptocurrencies.
Key Takeaways: How to Read Crypto Charts
Understanding how to read crypto charts is an essential skill for every investor, whether you are an intra-day trader, investing a little money you can afford to lose, or making a full-time living as a crypto investor.
Before investing, know what your aims are, and have an investment strategy.
Learn as much as you can about the cryptocurrency and altcoins you want to invest in, and have a plan for your overall investment portfolio.
Apply Dow Theory, as a way of analyzing the data and assessing the volatility and trends, and make sure you are looking at the right time frame to suit your overall investment strategy and desired goals.
Are you looking to invest in cryptocurrency, or implement fast and safe crypto swaps?
On ChangeNOW, you can buy any cryptocurrency with a credit or debit card, and sell or swap currencies, and exchange whatever you’ve swapped back into fiat currency, if you want.
Disclaimer: ChangeNOW does not provide investment advice. Cryptocurrencies are currently unregulated, which means every time you invest, your capital is at risk. Past performance is not an indication of guaranteed future price increases.
However, we put every effort into ensuring every transaction and exchange is secure, internally and working with partners, such as Simplex. ChangeNOW seeks to maintain accountability to its customers, employees, and the broad crypto community. We do it through strict AML compliance, social change encouragement, regular service quality upgrades, and community involvement.