Have you ever looked at a crypto chart and thought, “What fresh hell is this?”
If so, you’re not the only one.
Crypto charts elude the grasp of beginners and experienced traders. But we’re here to tell you that the plot lines, flowing waves, and red and green patterns aren’t difficult to understand.
You just need:
- A degree in finance.
- 40+ years of Wall Street trading experience.
- To sign a contract with Satan stating you’ll exchange your soul in return for understanding crypto charts.
Jokes aside, despite what you’ve heard, crypto graph patterns are neither impossible nor complicated to get your head around. This is good news for those who wish to invest in the crypto trade or are generally concerned about the market.
But before we delve into crypto trading patterns, there’s a concept you should be familiar with.
Let’s see what it is:
The Dow Theory
Charles Dow was an American journalist with many feathers to his cap; he introduced technical analysis*, co-founded Dow Jones & Company, and founded the Wall Street Journal.
*Technical analysis means examining crypto chart pattern cheat sheets and market-driven information to determine the best available crypto day trading strategies
The Dow Theory is a technical analysis form consisting of six parts. They suggest:
1. Markets Move in Three Trends
According to this principle, three forces impact the stock market at any given point:
- The Primary Trend lasts for at least a year and can continue for many. If an asset’s price moves up or down by 20%, it’s because of the Primary Trend. When it prolongs, it is interrupted by the Secondary Trend.
- The Secondary Trend moves in the opposite direction of the Primary Trend; it can be challenging to identify the Secondary Trend owing to its complex development process. It can last anywhere between a few weeks to a few months.
- The Tertiary Trends are also called Minor Movements. These trends aren’t the focal point of traders, considering they last between a week to ten days – max. And unlike the other two Trends, the Tertiary Trends do not affect long-term movements.
2. The Primary Trends Are Divided into Three Phases
Expanding on the first point of the previous principle, the Primary Trends can be classified into three phases:
- The first one is called the Accumulation Phase, where investors buy stocks from sellers at low prices based on their market knowledge.
- In the second phase – the Public Participation Phase – the public starts following the investors and purchases stocks. Generally, this is the longest phase.
- Right after the Public Participation Phase is the Distribution Phase, when investors purchase assets excessively. They sell the stocks to those unaware the cycle is about to reset, i.e., the trend will reverse soon.
3. The Market Reflects the Latest News and Information
The stock market reflects every piece of information the moment it becomes available. For example, if a company’s earnings are expected to increase, the market will mark them upwards. Using these price movements, the traders can make decisions, hoping they’ll benefit them.
4. Markets Must Confirm Each Other
For a trend to establish itself, an increase in one company’s stocks should directly relate to another related company’s assets. For instance, companies that manufacture solar panels will also report a price surge if there’s a hike in solar energy stocks. On the other hand, if one increases and the other decreases, it could mean the market trend is about to reverse.
5. The Trading Volume Confirms Trend
This principle of the Dow Theory emphasizes price action. It suggests that the crypto patterns day trading volume should rise if a stock’s price moves in the same direction as the Primary Trend. Similarly, the trading volume should lower if the stock’s price moves in the opposite direction.
6. Trends Will Continue Until They’re Affected by External Forces
In the final Principle, Dow believed that the market would keep following a specific trend until it’s affected by an external force – like Newton’s First Law of Motion. And if a long-term trend is making short-term swings, do not end it; instead, let it play out.
Reading Crypto Charts
There are many crypto chart types and how they function varies. Below are some of the most common ones:
If you’ve seen a crypto chart consisting of lines or bars, it was most likely a crypto trading candlestick pattern. It’s easy to understand, owing to the simple representation of the price action. In this chart, the candlestick has two bars:
- The thicker part, called the ‘Body,’ represents the asset’s opening and closing price points
- The thinner part is called the ‘Wick’; it shows the highest and lowest price points
Most candlestick charts have green and red candles, symbolizing a bullish move (a price increase) and a bearish move (a price decrease), respectively.
Another basic type of crypto chart is the line chart; it has a single, continuous line displaying data connected by straight segments. The line chart only shows the closing price of an asset within a day.
As the name suggests, a bar chart has several bars; each represents the price performance of a specific period. A bar chart is a good indicator of price fluctuations within a time frame.
Reading Crypto Charts, Simplified.
Reading crypto trading patterns is one of those tasks that seem complex on paper. However, things should be pretty simple once you get the hang of it.
And if at any point you find yourself struggling with the topic, American Made llc would be delighted to show you the ropes. Our website contains helpful resources that’ll make learning easy for you. They include:
- Crypto Chart Patterns Apps
- Crypto Pattern Scanners
- Crypto Chart Patterns Live
- Crypto Patterns Live Podcasts
- Crypto Trading Technical Analysis Podcasts
Frequently Asked Questions (FAQs)
Yes, chat patterns can help you make sense of the stock market. They can be used for identifying multiple factors, such as price movement, the latest trends, and trading opportunities.
To trade in the double top and bottom chat patterns, you must calculate the number of PIPs (Price Interest Points) between the profit target and stop-loss points.
Reading crypto chart patterns varies, depending on the type. Therefore, you must first understand whether you’re dealing with the candlestick, line, or bar crypto chart and then proceed with reading it.