The art of reading cryptocurrency charts is essential if you want to get into crypto trading. The Technical Analysis (TA) that comes with these charts can be quite cumbersome for newbies. However, this guide will help you read candlestick charts on Zipmex and explain the technical analysis so you can make better choices in crypto trading.
To have a better understanding of the technical analysis, it’s critical to become familiar with Dow Theory. The fundamental ideas of Dow theory are given below:
During the pricing, the market considers every possible factor, all current, previous, and upcoming news will be integrated into the current prices.
The crypto market is affected by quite a lot of factors and variables such as current, past, and future demands or any regulations that are in place.
The price movements are not exactly random; they tend to follow trends for a long or short term.
Market analysts are more focused on the price of the coin rather than one variable that moves the price.
History also tends to repeat itself, which makes the market behaviour quite predictable for traders, and they react the same way on seeing such patterns.
The Dow theory has six tenets; they are:
The Three Movements of the Market
The main movement or primary movement is a significant trend that may last for less than a year or continue for several years. This can be generally bullish (upwards movement) or bearish (downwards movement).
The secondary or intermediate section may last for ten days or go up to three months, and it retraces from 33% to 66% of the primary price change since the start of the primary movement.
The short swing or minor movements vary based on market speculation and can last for hours or go on for months.
Note: The three movements listed above may happen simultaneously.
Three Phases of Market Trends
This is the phase where knowledgeable investors come together and start buying or selling the asset based on their market perceptions. The cryptocurrency price won’t be affected much during this phase because the investors are in the minority.
The absorption phase is where the market catches on to the intelligent investors, and the public participates. More people begin following the trend.
After all the huge speculation, the limited supply of assets limits the market price as knowledgeable investors begin to sell their holdings to the market.
The Stock Market Discounts All News
The stock market reflects new information as soon as it becomes available. It incorporates the sum of all hopes, fears, and expectations of the market participants. Once the news is out, the price of the asset is subject to change to reflect the news.
Various factors, such as interest rate movements, earning expectations, major elections, and much more get included in the market price.
There Must Be Confirmation from Stock Market Averages
The performance of the stock market depends on the overall performance of the market participants. If one part of the market participants are interested in investing the other part should also be interested.
Any diverging views or performance can lead to a market trend reversal.
Trends get Confirmed by Volume
The upwards trend should be accompanied by an increase in the volume as well as the prices, and downward trends should lead to a volume decrease with the decrease in the price.
Definitive Signals Will Prove How Long Trends Will Exist
The Dow theory suggests that the market will follow a specific trend until some external force affects it, much like Newton’s first law of motion.
What is Technical Analysis?
Now that you are familiar with the Dow Theory let’s have a look at what technical analysis is. Technical Analysis is a method used to predict the future movements of a cryptocurrency pair, or a stock.
Time Frames for Crypto Charts
A technical analyst looks at crypto charts along with their technical tools and also considers time frames. The popular time frames that an analyst looks for are:
The time frame that any trader looks for is dependent on their trading style. There are generally two types of traders.
Intra-day traders generally open and close their positions within a day. Such traders prefer short time frames such as hourly, 15-minute, or even 5-minute charts.
Long-term traders hold their position for weeks, months, and even years. They find hourly, 4-hours, daily or weekly charts more useful.
The shorter time frame charts, such as 15-minute charts will only be useful for an intra-day trader and not a long-term trader.
Cryptocurrency Market Cap
The following formula calculates the market cap of any coin:
Market Cap = Total Circulating Supply x Price of each coin
The market cap of any coin is generally the product of the coins in supply and the price of the coin. This is an excellent indicator of the stability of the coin.
Reading Zipmex Candlestick Charts
The candlestick charts give you all the crypto price information required to trade. Using such charts, you can set the proper entry and exit points and also perform technical analysis. These candlestick charts form different shapes and patterns that help to predict future market trends.
Let’s look at the key features of the candlestick charts:
The crypto candlestick charts allow you to select the right time frame you want to display. You can choose from a default time frame – 5-minutes, 15-minutes, 1 hour, 4 hours, daily, weekly, or monthly. You can even customise the time frame to your requirements.
Any standard crypto chart will display the volume of cryptocurrency traded at a particular time. The volume shows how much crypto was traded in the selected time frame. The higher the volume bar, the more the people are buying or selling.
A green volume bar indicates increased interest in buying the cryptocurrency and buying pressure, and the red bar indicates a decrease in the interest in the coin and selling pressure.
Bearish and Bullish Indicators
There are two types of candlesticks – Bearish and Bullish.
Green candles are representative of bullish candlesticks which show an increase in price at the selected time frame. The top part of the candle represents the closing price, and the bottom part denotes the opening price.
The bearish candlesticks are represented by red candles to show a decrease in the price. The top part of the candle represents the opening price, and the bottom part denotes the closing price.