Chartology #2: Charts & Graphs
Understanding why Technical Analysis is needed when making a trade is a start; understanding how to use Techincal Analysis is the next step.
Given the popularity of our Chartology Twitter series, we’ve decided to introduce an expanded version of that short-form Twitter guide. In this, the second installment, following a look at Technical Analysis, we will be unpacking charts and graphs.
We begin by exploring the different types of charts used for Technical Analysis in trading: line charts, bar charts, and the main one — the candlestick chart
We will dive into reading candlestick charts, and when they are useful. Then, in the following installments of Chartology, we will break down patterns traders look out for to assess and predict markets.
The Types of Charts
Line Chart
The line chart is the most basic of the three. Used by beginners, it is constructed by joining the closing prices of an asset for a certain period of time.
Bar Chart
It provides more information, like where the asset’s price had opened and closed, the high and low points for the period, as well as the range.
Candlestick Chart
By far the most popular type, it displays the same information as the bar chart but tends to be preferred by traders as it can give the highs and lows over a specific time period.
What are candlestick charts?
Candlestick charts, also known as Japanese candlestick or K-line charts, are a style of financial chart and technical analysis tool used by traders to describe and analyze the price movements of securities, derivatives, and currencies in traditional and decentralized finance alike.
How to Read Candlestick Charts
Reading a candlestick chart involves understanding the meaning of each element of the chart, which includes the candlestick body and the lines extending from the top and bottom of the body. The body of the candlestick represents the price range between the opening and closing price of an asset, with a green body indicating a price increase and a red body indicating a price decrease.
The lines extending from the top and bottom of the candlestick body, also known as “wicks” or “shadows,” represent the high and low prices of the asset during the given time period. The upper wick represents the highest price reached, while the lower wick represents the lowest price. The length of the wicks can provide valuable information about the level of volatility in the market.
Traders use candlestick charts to identify patterns that can indicate potential trends or reversals in price movements. For example, a “doji” candlestick, which has a very small body and wicks of equal length, can indicate indecision in the market and may suggest that a trend reversal is imminent — more on this in our Chartology series.
By understanding how to read candlestick charts and identify patterns, traders can make more informed decisions about when to buy or sell assets.
Uses of candlestick charts
Candlestick charts are a powerful tool for analyzing price movements in cryptocurrencies and can help traders identify potential trends and market patterns. One of the best ways to use candlestick charts when trading cryptocurrencies is to identify key support and resistance levels.
Traders can use candlestick charts to identify these levels by looking for patterns such as “double bottoms” or “double tops.” They can also use candlestick charts to identify potential trend reversals.
Ultimately, the best way to use candlestick charts when trading cryptocurrencies is to combine them with other technical indicators and fundamental analysis to develop a comprehensive trading strategy. By using candlestick charts in conjunction with other tools and strategies, traders can make more informed decisions and increase their chances of success in the cryptocurrency market.
This is information — not financial advice or recommendation.
The content and materials featured here are for your information and education only and are not attended to address your particular personal requirements. The information does not constitute financial advice or recommendation and should not be considered as such.
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