Cryptocurrencies have been on a smooth ride for the past few years. And people are looking for ways to trade on crypto coins and learn how to study the charts of a cryptocurrency. But crypto coins or tokens don’t have Balance sheets or Profit & Loss Statements for them to look at. So, fundamental analysis is more or less out. But we still have technical analysis. Technical analysis is simply based on the historical performance of the asset. It takes into consideration how a certain asset has performed in the past and predicts its future movements on the basis of that information.
Although, in a volatile asset like crypto a technical analysis is not very easy either. But is still possible with some of the bigger and stable cryptos like Bitcoin and Ethereum. Most of it would still be speculation. But that’s what traders do.
Studying the charts can give you a lot of information about a currency or token. The two most important terms of technical analysis are Support and Resistance. Other than those terms there are several other terms that a trader must know for analyzing the charts. Like Volume, Price Movements, EMA (Exponential Moving Average), Candles, Bullish, Bearish, etc.
For traders who are already used to analyzing the charts in the Stock Markets, or commodities. These terms may sound very familiar, and understanding them in connection to crypto would be a piece of cake for them.
Below you can find some terms which can help you study the charts of a Cryptocurrency
Support and Resistance
As mentioned above these are the most important terms for the technical analysis. Support in its literal meaning is a very simple word. You just need to search for the price level from which the asset has bounced back several times. A price point that the coin does not easily break. A Support point is a point that gives the buyers the opportunity to enter the trade and take new positions.
Resistance simply means a price level where the asset faces trouble moving ahead. A price point from where the asset has dropped several times. A resistance point gives the buyer an option to exit his trade or book profits, even sellers can take a short trade at the resistance levels. As mentioned above the technical analysis is all about the history of the asset and how it has performed in the past. Because if an event has occurred more than once in the past, it is very much likely to happen again.
It is crucial for a trader to understand what Volume means in trading. Volume means the number of trades that are being taken on the coin/token at a particular point of time, or day. There are buyers and sellers doing trade on an asset all the time, and volume is just the record of the number of tokens/coins traded at a time. Tracking the volume of an asset helps a trader understand what are the sentiments around that asset. If the volume is extremely high and the coin is moving up, it means that people are buying in bulk, and there could be some positive news circulating in the markets regarding that asset. You can refer to the chart shown above.
Candlesticks are the most commonly used chart analysis technique used all over the world. It is a Japanese technique of analyzing charts of all kinds of assets. For the easiest and the best technical analysis of any asset, a trader must learn to read candlesticks charts. The individual candles of the charts can provide an analyst with four important information, Open, Close, High, and Low. Open is the price at which the stock opened at a particular point of time, day, month, or minute. Close is just the opposite. High is the highest price that the asset went to in a certain period of time. And Low is just the opposite of High.
There are many candlestick patterns that help in the technical analysis of an asset. For Example, Marubozu, Bullish Harami Pattern, Doji, Spinning Top, etc. These are the advanced pattern that you can study after understanding the candlestick patterns.
These were some terms and concepts that a trader must be familiar with to trade on crypto. These are just the basic concepts that can help a trader to study the charts of a cryptocurrency. Other than the technical analysis a trader should also always be updated on the news and events of the crypto industry. And the individual coin or token he chooses to trade on. Because the crypto market is extremely volatile with very little fundamental data to back the assumptions. So, a trader must always trade with caution and a beginner should never go all-in at the beginning itself.