If you know how to read charts and what patterns (figures) to pay attention to, charts can indicate the potential of an asset or, conversely, demonstrate its unreliability. In simple terms, charts help traders build a competent trading strategy. Depending on what patterns the user notices, he will decide to sell or accumulate the selected cryptocurrency.
According to the Dow Jones Theory, there are three types of trends in the market:
main trend - can last from several months to decades;
secondary trend - lasts for weeks or months;
minor trend - lasts up to 10 days.
To determine the market phase and prospects, a trader uses price charts. Let's look at their types that can be found on trading platforms.
Linear price chart
The line chart is considered the simplest, as it reflects the history of price changes as a result of closing trades at a certain point in time. It is visually represented as a continuous line.
The horizontal axis shows time, and the vertical axis shows the price of the cryptocurrency. This chart is convenient for analyzing market movements on long timeframes, and is also popular among beginners.
However, the line chart is not suitable for deeper analysis because it does not display data on the range of price movements.
Candlestick chart
Candlestick charts contain more information. This type of chart, known as "Japanese candlesticks", shows the history of price changes as a result of opening and closing trades over a certain period of time, the maximum and minimum prices, as well as the general sentiment of investors.
The indicator itself â a candle â consists of a body and a wick (shadow), where the body demonstrates the value of the asset. The wick at the top of the candle indicates the highest value of the cryptocurrency, and the lower wick records the lowest value of the coin over a certain period of time.
A long lower shadow on a candlestick may indicate that traders are actively buying cryptocurrency when the price drops.
The color of the candle changes depending on the dynamics of the asset price in a certain period of time: if the value of the cryptocurrency has increased, the candle will be green, and if it has decreased, it will be red.
Japanese candlesticks also demonstrate the general mood of the market. For example, if the body of the candlestick is quite voluminous, the wicks are short, and the color is green, then such indicators indicate a bullish mood of investors. A similar form of candlesticks, but in red, signals a bearish trend on the selected time frame.
However, there are situations when sellers and buyers are equal and neither of them controls the situation. In this case, a doji is formed - a candle that is almost devoid of a body, but has long shadows.
The appearance of a doji on a chart may indicate a change in the market trend. However, a trader needs to use other technical analysis tools and study different indicators.
Candle shapes
On the Japanese candlestick chart, different figures are formed that can indicate possible market dynamics. There are several dozen patterns that are conventionally divided into three groups:
trend continuation pattern;
bullish reversal pattern;
bearish reversal pattern.
I will describe it in detail in the following posts.
Types of charts and what are their featuresâŠ
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