Charts are the primary tool for understanding price movements and analyzing markets. With them, beginners can determine the market trend and make informed trading decisions. In this article, we will learn about the types of charts and how to read them simply.
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1. What are charts?
Charts are visual representations of the price movement of cryptocurrencies or financial assets over a specific period of time. They are used to identify trends, patterns, and entry and exit points.
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2. Types of charts:
A. Line Chart:
Displays a solid line connecting the closing prices for each time period.
Features: Simple and easy to understand, suitable for trend analysis.
Disadvantages: Does not provide details about price movement over the period.
B. Bar Chart:
Each bar represents price movement over a period of time, and shows:
High price.
Lowest price.
Open price.
Close price.
Features: Shows greater detail about price action.
C. Candlestick Chart:
Most common and widely used.
It consists of:
Body: Represents the difference between the open and close price.
Wicks: Represent the highest and lowest price during the period.
Features: Clearly shows price action and easy to read trend.
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3. How to read Japanese candlesticks:
A. Bullish Candle:
The closing price is higher than the opening price.
They are usually green or white in color.
B. Bearish Candle:
The closing price is lower than the opening price.
They are usually red or black in color.
C. Body length and shadows:
Long body: reflects strong movement during the period.
Long shadows: Indicate price volatility and market instability.
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4. Timeframes:
A. What are the time frames?
The time period that each candle or bar on the chart reflects.
B. Common types:
Minute (1m), 5 minutes (5m), Hour (1H), Day (1D), Week (1W).
For day traders: Short time frames like 5 minutes or 15 minutes.
For long-term investors: Long time frames such as daily or weekly.
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5. Understanding Trends:
A. Uptrend:
A series of rising peaks and troughs.
Reflects a bullish market.
B. Downtrend:
A series of decreasing peaks and troughs.
Reflects a bearish market.
C. Sideways: Also called the transverse direction:
Price movement in a narrow range with no clear direction.
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6. Using charts with technical indicators:
A. Relative Strength Index (RSI):
Measures momentum.
Shows overbought or oversold signals.
B. Moving Averages:
Helps identify trends and support trading decisions.
C. Support and resistance levels:
Support: A price area that prevents the price from falling.
Resistance: A price area that prevents the price from rising.
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7. Tips for reading charts:
1. Start with a simple chart: Use line charts or Japanese candlesticks to understand the basics.
2. Choose a time frame that suits your style: Don't just focus on short time frames if you're a beginner.
3. Look for patterns: such as trends, key levels, and special candles (such as hammer or doji).
4. Combine technical and fundamental analysis: to gain a deeper insight into the market.
In other articles you will find some types of Japanese candles that give buy or sell signals.
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Reading charts is an essential skill that every trader should learn. Once you understand how to read patterns and prices, you will be able to make more informed and accurate trading decisions.
