Charts are perceived as confusing, but they really aren’t. They are excellent for monitoring trends and spotting potential entry and exit points. That being said, they are never 100% predictable and can often leave you thinking –
“What the hell just happened? This wasn’t in the script”.
Charts may look like art but in fact, they are rooted in hard math.
Charles Dow, the father of technical analysis (TA) as we know it today, was a reporter and founder of the Wall Street Journal at the time in the 1800s.
In his journalistic pursuit, Dow took 100s of meetings with industry leaders and began to develop an understanding and insight into how the market worked at a fundamental and technical level. This is Dow theory.
The Dow Jones Industrial Average (or the Dow), today is an average of the top 30 market-leading companies across 9 different sectors. If one of these stocks performs poorly, the committee can choose to remove and replace this for a better-returning company.
But we are not interested in all that boring stuff…
Soku Homma, not heard of him? Well, it is not likely you will have. He was a rice merchant in the 1700s, what has this got to do with you making you money in cryptocurrency?
Well, the samurais of that time were paid in rice. Arguably, rice has more utility than cash, but don’t start me on that tangent. As a rice merchant, Homma discovered that external factors like weather and seasons affected crops which in turn affected scarcity and supply of rice.
This genius is said to be the first user of the candle-stick chart as a market indicator that we all know and love today. He was renowned as the best trader in Japan at the time and legend has it, he made over 100 successful consecutive trades. That would be some huge compound interest. This made him an extremely wealthy man.
Before we look at the candlestick chart and what it means, let’s have a look at the chart in its most basic form.
I recommend getting familiar with TradingView. It is the best layout and easiest chart provider to use, in my opinion.
So here we have the king of them all… Bitcoin. This chart represents the Bitcoin price against the USD stable coin (USDT).
I have selected the 1 day (1D) time frame which is a nice indicator of how things are playing out. Up the Y-axis on the right-hand side, you will see the price in USDT.
At the time of writing, you can see BTC is at its all-time high!
Lets, have a look at it in more depth.
To select the chart you are wanting to view in trading view you need to type in the ticker (BTC in this case) then select from the drop-down menu which exchange, you want the chart to be drawn from.
So I have selected the BTC:USDT chart from Binance. You can see the 1D which indicates the 1-day time frame.
This means that each candlestick represents 24 hours of trading activity.
If you are to select a 1-hour time frame, you guessed it… It shows you all the trading activity in 1-hour of trading.
Smaller timeframes like 1 minute to 5 minutes give a better indicator of recent activity.
Whilst, the longer time frames like the day, week or even monthly give a better representation of the overall long term trajectory of the project.
Unless you are scalp/day trading you don’t necessarily need to go below the 1 hour or even 1-day time frame.
The highlighted area above shows (from left to right):
How much the price is up in that time frame, so 1-day in this example.
% change in that time frame
The Open is the price that BTC was at 00:00 that day when the new candle is started.
The High – The highest price it has been in that 24 hours
The Low – The lowest price it has been in that 24 hours
The Close – The price that BTC will close at in that 24-hour candle. Note if you haven’t selected a specific candle this will be the current price. Once midnight hits the close is captured as the price at 00:00.
This is the zoomed-in chart to give us a better look at the candle. This is still BTCUSDT and on the 1D timeframe.
As you can see from the big green dildo (their words not mine), that the top of the candle, known as the wick is the highest price on that day. The top of the candle body is what price the day finished. The bottom of the candle body is the price it started, whilst the bottom wick is the lowest price in the day.
This is always the same. If it was the hour timeframe then its exactly the same but over the course of an hour and not a day… obviously.
What do the candles tell us when trading?
Well if they are green they closed the day higher than they started which is a price increase.
If they are red, they closed the day at a lower price than they started.
Again, if the candle is red or green on the hour time frame… Okay, you get it now, I’ll shut up.
Larger candles mean a larger price change, whether that be up or down. Hopefully up. Up only crew.
If the price doesn’t change much at the candlestick looks more like a cross or a dragonfly, this can spell uncertainty in the market. Both sellers and buyers are met with equal resistance.
You will hear bulls and bears a lot. Bulls are good, they are driving the price up. Bears on the other hand are people who are betting on the price going down. I know right, who could be bothered to do that.
Support and resistance in crypto trading
Support is the price range that a coin will hold. This is because whenever the price gets to that point, buyers who are ready and waiting see this as a great value and then jump at the price.
Resistance is the opposite. Think of it as the glass ceiling. Whenever the price rises to that point, bears like to sell. Or weak handed buyers think it won’t go any higher so cash out…
So what happens if the price goes above the resistance or below the support, for that matter?
Well, the price can usually dip below or rise above the support, that’s normal but what you are looking for to confirm the price direction is the close.
If the candle closes above the resistance line, then that is a good indicator the price will go up. Although, sadly, the opposite is also true.
Trendlines in cryptocurrency
How are you drawing these lines? Well, it’s up to you. I know that isn’t what you wanted to what. Typically you would find the closing price that the candles keep banging their heads off and draw a straight line across as I have.
The same for the support. Find where the candles are usually bottoming out and draw the support line.
I’d aim to draw it parallel to the body of the candle as opposed to the wicks.
Trendlines on the other hand you can typically do either (candle body or wick).
So what are trendlines in cryptocurrency?
Well, they are… trendlines…
I personally take them from the top of the wick, don’t ask me why it works for me and I keep it consistent. Whatever way you do it make sure it is consistent. Consistency is key.
This is the chainlink chart against USDT on the 2-hour timeframe taken from Binance.
So the trend was a downtrend as the price was slowly decreasing. I drew a line from the top of the wick and across all the other tops of the wicks in a straight line. This is effectively a diagonal resistance line.
The green band is how I like to draw my support region. So as you can see, the price moved throughout the triangle I have effectively drawn and what happened is it broke above the trend line I had drawn and more importantly closed above it.
If you had read above, you know this is a bullish signal that the price should* increase.
The same applies to the downtrends which are really difficult to find in these bull markets…
I did manage to find one… Even if it is a BNBDOWN which is effectively a coin that increases in value as BNB goes down in value. So its the opposite. Its effectively used for shorts.
So BNBDOWN going down is positive for BNB as that means the value and sentiment behind BNB is up. Its a double negative and forget it if you don’t understand it you don’t need to.
But to make my point the trendlines were broken and the candle closed below and hence triggered a downtrend in this particular case.
Few tips that I like to stick by –
Volume precedes price, you see a volume increase, you bet there’s a price change coming for better or worse.
Don’t overcomplicate it. It’s simple.
People are more predictable than you think.
Everyone else is looking and using the same chart as you, so what will they be doing?
TA is to be used in harmony with fundamental analysis.
You can use trendlines on volume too!
To be honest, crypto is a great place to trade over whatever timeframe you are happy with. Lot’s of generational wealth is available to be made, just don’t go losing it all.
I will do a full no so exit strategy plan that will be out next week. If you want to practice your charts join our telegram and ask us. Before you ask draw what you think and then refer back to ours. Also, use Trading view. There are people who publish ideas there, so you can see if you are on the right lines.
You can send us your charts and we will give you directions but to be honest if it works for you it works. Crypto is a very accessible place load up your account with a small amount and test your hypothesis. Once you get more comfortable then you can start moving up in value.
If you need an account for trading you can sign up to AAX HERE. They are probably the most intuitive exchange to use and not to mention the easiest to sign up for.
Additionally, in these amazing bull markets, the biggest exchanges can often get extremely frustrating… People have issues signing in, withdrawing and depositing over busy periods, but not at AAX.
I would recommend always having this as an option. We do and it works perfectly for us.
So if you want to sign up and get some practice in head HERE.
I will go through the best indicators and tools to use when trading that will be released next week so stay tuned and put our social media notifications on!
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