A novice cryptocurrency investor’s dream is to end up with a Lambo and then go off to the moon. A crypto veteran, however, knows his game and trades intelligently in order to maximize his profits. If you are new to the cryptosphere or had to deal with bad trades in the past then chances are you are not focusing on the price charts and hitting buy or sell button after reading the current price. Whether you want to HODL or sell, being able to understand the cryptocurrency charts is a must. Today’s guide is for any person who wants to understand the art of analyzing the cryptocurrency price charts and become a successful crypto trader.
Types of Charts
- Line Chart:
The easiest chart for analyzing cryptocurrency is a line chart. This chart is of the most basic nature as it only shows the progress of a cryptocurrency’s price. A line chart can give you general insight about how a coin has performed over time. Aspects like price and market cap are usually represented and the price line is drawn by using the closing price of the coin. Traders can look up line charts for any period of time. Cryptosomniac has a dropdown with multiple options which can be used for setting the time period.
- Candlestick Chart:
Candlestick chart is a favorite of seasoned crypto traders as it displays a couple of things such as opening price and closing price along with the highest and lowest prices for the time period being analyzed. The bars or candles are of two types depending on the closing price i.e. red candle or down bar if price higher than opening price and the green candle or up bar if the price is lower than the opening price. The candle’s spread can either be wide or narrow indicating the difference between the prices.
Methods for crypto price forecasting
Price forecasting is a risky business where even the most experienced traders can end up with trades resulting in huge losses. There are many tools and approaches that can be used by cryptocurrency traders for assessing the behavior of the market and in turn make educated price forecasting. Technical analysis and fundamental analysis are two methods that are extensively used by traders to make predictions that lead to profitable trades.
In technical analysis, the historical data of the crypto coins is used which includes price charts and trading volumes for understanding the market sentiments and trends. The functionality of the coin or its benefits is not factored into the equation.
Technical Analysis Tools:
- Trend Lines:
Trend lines are the direction of a crypto coin’s movement but due to the highly volatile nature of this market, it is quite difficult to isolate trends for beginners. In order to understand the trend lines, one needs to ignore the volatility of the market and observe the patterns of highs or lows. A trend line is considered valid if a minimum of three points is connected. There are two types of trend lines:
- Uptrend line: An uptrend line is a sign of bullish market behavior. It indicates the rise in the price and net-demand of the coin. It is formed when two or more low points, second low higher than the first one, are connected which results in a positive slope.
- Downtrend line: A downtrend line indicates bearish market behavior. It is formed when two or more high points are connected which results in a negative slope.
- Moving Averages (MA):
Moving average is the average price of a cryptocurrency with random fluctuations filtered from the price of a given time period. MA is an indicator of the trend based on the historical prices of the coin.
- Trading Volume:
Trading volume is a significant tool used for identification of price trends. High trading volumes usually represent significant trends while low trading volumes represent weak trends. It is highly advisable to check the volume of a coin whose price has gone down.
In fundamental analysis, the focus is on assessing the intrinsic value of the digital coin. Factors such as the economy, the company’s finances, and even the coin’s functional benefits, etc. are taken into consideration.
Fundamental Analysis Tools:
- White Paper:
The white paper of a crypto coin states its purpose and the fundamental benefits associated with it. It is a detailed document in which a problem is discussed and then the use cases of the coins are listed as a solution. White papers are usually loaded with technical jargon, radical concepts and viral buzzwords which is why one needs to be very careful when deciphering its content.
- Qualitative Factors:
The qualitative factors include the core development team, reputation of the company and investors backing the coin or its underlying technology.
- Quantitative Factors:
Trading volume of a cryptocurrency is a commonly used quantitative factor used.
- Economic Events:
Economic events such as a hardfork or softfork of a coin, hacking incidents on crypto exchanges and regulation policies / legal rulings by government bodies, etc. play a critical role in this analysis.
- Online Presence
The official slack channel and the blog of a cryptocurrency show its authenticity. If the team is answering the questions regarding the coin and developers are posting updates regularly then it is a positive sign.
Forums and social media platforms are also a great place to check out the market’s sentiments regarding the coin. A well-informed community can help in simplifying even the most complex terms and concepts.
So, this was our beginner level guide for those who want to understand how the price charts or price analysis approaches work. If you want to be part of the crypto market and want to make the best possible choice then we recommend that you use the combination of both approaches. If you want to stay updated on how things are working in the market or which coin looks promising then opt for Cryptosomniac’s Advantage Subscription where crypto gurus assist you in making wise financial decisions.