Long term traders depend on long term trends. These traders need to examine months of data at the same time to get a better overview of the larger trends. It does long term traders no service to examine the smaller fluctuations in the market. In fact, it can be counterproductive as it could cause the trader to second guess their decision. Consequently, the market cap tells you a lot about a particular asset. You can examine the market cap to gain a deeper insight into the stability of an asset.
Websites such as CoinMarketCap. You can use these charts to spot trends in the market. In the case of Bitcoin, you will notice that over the last 9 years the asset has gained considerable value. Candlestick charts are the most popular style of chart used in the crypto space today. At first, these charts can seem as strange as the controls of an alien spacecraft to the untrained eye.
However, it only takes a few minutes to understand these remarkable trading tools. Candlestick Chart — Binance Trading Window. Candlestick charts provide you with a plethora of information at just a glance. You will notice the red and green candlesticks are laid in succession. Importantly, each candle shows you the price movement of an asset over the selected timeframe. Candlestick charts provide you with everything you need to know to understand the current state of the market value of an asset. You can see the opening and closing prices, the daily high and low, and you can decide on what time intervals you what this information displayed.
A green candlestick indicates that Bitcoin closed higher for the time period than its opening value. Anytime you see a red candle, it indicates there were some losses incurred by the asset. Where the main body of the candle begins is the opening price for the day.
If the candle is green, the opening price will be the bottom of the candle body. You will notice that the top or bottom always lines up with the proceeding candle in the chart. This alignment represents the close and opening of the next trading day. This time can varies depedning on the trading interval you choose. There are also small lines sticking out from the top and bottom of the candle. These lines are known as shadows. Shadows represent the high and low for the day. In this way, you can ascertain an incredible amount of information from a candlestick chart in seconds.
This data can then help you to make a timely investment decision. Certain candles can indicate the start of trends. Consequently, an entire terminology has emerged surrounding these indicators. Here are the most common candlestick indicators you will see when trading Bitcoin. A hammer candle can indicate a bullish reversal is about to occur.
The candle shows that when the market opened, sellers forced the price to drop steeply. This downward pressure was met with stronger buying pressure. This pressure resulted in a shift in momentum. Importantly, the momentum was pushed back down a slight bit, but not before the day closed. Hammers are easy to spot because they contain a shadow that is sometimes 3x as long as the body of the candle.
Hammers let you know that buyers are in the market and they are controlling the price action for the day. The falling star candle is the opposite of the hammer candle. When you see these candles it means that the buyers had control of the market when the day opened but before the close, their gains were erased by strong bearish pressure.
In turn, you can predict that more selling pressure is entering the market. Falling stars have very small lower shadows with the upper shadow accounting for the majority of the candle. A bullish engulfing pattern again signifies that buying pressure is strong in the market. In this 2-candle pattern, you see that the sellers forced the price down the day prior. The following day, sellers regained control and dwarfed the losses the bears introduced the day prior. This pattern shows a bearish candle followed by a larger bullish candle.
Learn How To Read Crypto Charts- Ultimate Guide Part 1
Reversely, the bearish engulfing pattern lets you know that sellers are entering the market in droves. The first candle in this pattern will show gains from the day prior.
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The next candle in this pattern will reverse the gains and show even stronger losses. A morning star pattern utilizes three candles to determine market trends. A morning star is a bullish reversal pattern that shows a struggle ensuing between buyers and sellers. On day one, you see that sellers had full control over the market. This sales pressure was countered on day two and reversed on day three.
The evening star pattern is the opposite of a morning star. Here you see that buyers get exhausted after two days of pressure. On day one, the buyers were able to control the price.
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On day two there advancements were met with equal pressure and by day three, they lost control of the market. You can easily spot star trends because they have no body because the pressure on both sides of the market was equal. The morning star candle indicates that sellers are now in the backseat and bulls are in control. Evening Stars show that bears run the market currently.
The formula reads as:. By comparing the current and past market fluctuations, as well as the magnitude of recent gains to recent losses, the RSI attempts to establish if an asset is overbought or undervalued. An overbought asset will usually depreciate in the near future. An undervalued asset will go up in price as its intrinsic value is realized. This means that you must use this tool in conjunction with other indicators to improve your results. RSI indicators are prone to false buy and false sell signals.
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These can occur when there is a pump or flash sale in the Bitcoin market. The RSI chart shows a line graph that ranges from 0 to This indication could signal a price drop. Reversely, a score of 30 demonstrates an undervalued asset. This score means there is a good chance the asset could experience a price rise.
You will also want to understand support and resistance lines. Think of these invisible barriers as predetermined levels of the price of an asset at which trend reversal usually occurs.
Determining support and resistance levels is easy. Just look for points on the chart that you see multiple touches of price without a breakthrough of the level. When a support level is broken, it indicates that the market has reversed its flow. Additionally, support levels can help you to determine where the price of Bitcoin might bounce back. If Bitcoin was over the price of this level, it would then serve as a support line. When the line is definitely broken, it signals major market movements.
Successful traders need to grasps the main psychology of the market to remain effective.
Bitcoin Chart Analysis: How to Trade Bitcoin Using Charts - Master The Crypto
Understanding the minds of other traders helps you to better predict how the market will reflect certain developments such as new regulations. There are three main types of trading psychologies at work in the market today. The first type of trading psychology is that of long traders. These are individuals that buy their assets and plan to hold them until the price rises at a much later date. At that point, they will resell their assets and take their profits. These traders often incorporate other financial instruments such as leveraged futures to maximize their profits. Lastly, you have your average trader.
This category contains most new traders. Now that you have a firm understanding of the key components in trading Bitcoin, you are ready to start your trading adventure. David Hamilton is a full-time journalist and a long-time bitcoinist.
He specializes in writing articles on the blockchain.