Crypto Graphs & Charts: Analysis Tips
Reading the graph of crypto prices may not be as simple as you think. Sure, many of the same rules of reading stock graphs apply here, but the unique volatility of cryptocurrency further emphasizes the routine of carefully analyzing — not just reading — crypto charts and graphs. We’re not saying that there’s a magic crystal ball technique for perfectly predicting price fluctuations, but there are several specific techniques and resources which you can use to estimate the subsequent price movement on a graph. Here are some tips to help you get more out of each chart or graph you read.
This is not intended as financial investment advice.
This article will touch on key aspects and terminology of investing cryptocurrencies.
Dips & Spikes
The first thing to do when you’re presented with a crypto chart is to isolate the recent dips and spikes. Without knowing which stage of price fluctuation a cryptocurrency is at, you cannot move forward in terms of analyzing future movements. Dips tend to represent sell-offs and capitulations which usually follow spikes in price. So what does this all mean in the context of predicting ensuing prices? Well, to keep it simple, it serves as an indicator of when to and when not to buy a cash position for a cryptocurrency. You shouldn’t introduce a cash position when the price for a specific coin is spiking, but you should look for prominent dips which could indicate a nearby spike. This is what is known as buying the dip.
Similar to today’s stock markets, cryptocurrency prices tend to follow a negative feedback loop to regulate a general value range for each cryptocurrency. When prices spike and sit at values much higher than its historical average price, you can usually predict that the price will dip again soon and vice versa. Taking into account just how volatile cryptocurrency is, it becomes even more important to be aware of each spike and dip in price. Just as quickly as a price can spike and moon, it can dip even faster.
Basic line graphs, such as those found on coinmarketcap.com, clearly illustrate the price of all cryptocurrencies listed over its entire existence. With some coins currently at all time highs and some at all time lows, knowing the stage a coin is at in its price movement will give you a better understanding of its future performance. Remember, identifying recent dips and spikes simply gives you a basic understanding of where the coin currently sits, but won’t give you an accurate indication of what’s next. For this, you must add another factor into the analysis.
Technical Analysis
Just like stock market graphs, crypto graphs can be assessed by using what is called technical analysis. This is the process of quantifying price action with a visual representation of the accompanying charts by determining the overall trends in which a market is moving. Take your time when analyzing graphs by exploring different time ranges, observing both short term and long term price movements. The best way to pinpoint trends within the chart is to keep it over a one-week time frame so that you can ensure the highest accuracy when predicting future movements. Use your cursor to hover over specific time periods and get exact prices at specific times.
Instead of analyzing basic line graphs which are shown in most major exchanges like Coinbase & Binance, utilize candlestick graphs which provide an even more accurate representation of how prices are moving. In these graphs, colored “candles” represent whether a closing price is higher or lower than its opening price as opposed to the simple price movements which are shown in line graphs. This is just another tool you can use when reading crypto graphs, best utilized during technical analysis to accurately identify trend lines.
Trend lines are linear patterns of price movements over a longer period of time, indicating the general direction of where a price is heading. The key to using trend lines in technical analysis keeping the time frame longer than a week, given how volatile cryptocurrency is. Coinigy charts illustrate price movements through candlestick graphs, while also providing several tools that you can use to further analyze price trends. Overall, TA provides the most accurate way to predict price movements when solely analyzing charts.
Combining dips & spikes with TA will give you a plethora of information regarding how a coin is performing, but what do you do once you’ve gathered all that information?
Putting It All Together
Following technical analysis and general observations, you can make an educated prediction on where the price of a coin might be heading. It’s important to be aware of the fact that no matter how much data you have, it’s impossible to be 100% accurate when predicting the performance of a coin. There are so many factors which go into how a coin’s price moves, outside of simply analyzing the graphs. To help consolidate all this information, use online resources which are available for everyone to utilize when assessing the performance of coins.
Some online analysis resources include TradingView, BitcoinWisdom, and BFXData, all of which provide detailed charts and graphs which will make analyzing prices much easier given their extensive information and tools. Some key statistics to look out for include volume, 24-hour change, and market capitalization. These numbers — all of which you want to be as high as possible — serve as additional indicators of a coin’s future performance. When you assemble all the information, data, and TA you are no longer just reading price graphs… you’re analyzing them!
Cryptocurrency remains one of the most volatile assets today. Take this into account when assessing charts and graphs, as even the most accurate indicators may end up being completely wrong. Instead of simply reading a graph or chart and saying to yourself “Okay, this coin is doing well,” ask “Why is this coin performing well?” Once you start thinking this way, analyzing data will become natural and you will be more knowledgeable about trading over time.
