A price chart is a record of what buyers and sellers agreed to pay over time. Reading one does not tell you what happens next. It tells you what has happened, how strong the moves were and where the market reacted before. That context is useful for traders and long-term holders alike, as long as its limits are understood.
Candlestick Basics
Most crypto charts use candlesticks. Each candle covers one time period, from one minute to one month, and shows four prices: the open, the high, the low and the close.
The thick part is the body. It spans the open and the close. The thin lines above and below are the wicks, which reach to the high and the low of the period. A green candle means the close was above the open. A red candle means the close was below it.
Crypto trades around the clock, every day of the year. There is no closing bell, so a daily candle is simply a 24-hour window. Most platforms start it at midnight UTC.
Common Candlestick Patterns
- Doji: the open and close are almost equal, leaving a very small body. It shows indecision.
- Hammer: a small body near the top with a long lower wick, appearing after a decline. Sellers pushed the price down and buyers brought it back.
- Engulfing: a candle whose body fully covers the previous candle's body in the opposite direction.
- Morning star and evening star: three-candle patterns that can mark a turn after a decline or an advance.
Patterns describe short-term behavior. On their own they are weak evidence, and they fail often.
Support, Resistance and Trend
Support is a price area where buying has stopped declines before. Resistance is an area where selling has stopped advances. They are zones, not exact numbers. The more times price has reacted at a level, and the higher the timeframe, the more attention traders pay to it. When resistance is broken, it often acts as support afterward.
A trend is the general direction. An uptrend is a series of higher highs and higher lows. A downtrend is lower highs and lower lows. When neither is present, the market is ranging between support and resistance.
Key Indicators
Indicators are calculations based on past price and volume. They summarize what already happened.
- Moving averages: the average closing price over a set number of periods. The 50-day and 200-day averages are widely followed. A golden cross is the 50-day rising above the 200-day, and a death cross is the reverse. Both signals arrive late because averages lag.
- RSI (Relative Strength Index): a momentum measure from 0 to 100, usually calculated over 14 periods. Readings above 70 are called overbought and below 30 oversold.
- MACD: the difference between two moving averages, commonly the 12 and 26 period, compared with a 9 period signal line. Crosses are read as shifts in momentum.
- Volume: how much was traded in the period. Moves on high volume have more participation behind them than moves on low volume.
Overbought does not mean the price must fall. In a strong uptrend, RSI can stay above 70 for weeks. In a downtrend, an oversold reading can be followed by further declines.
Chart Settings That Matter
- Timeframe: short-term traders watch minutes and hours. Long-term holders look at daily, weekly and monthly charts. Levels on higher timeframes carry more weight. A common approach is to find the trend on a higher timeframe first, then look closer.
- Linear or log scale: a linear scale gives equal space to equal dollar moves. A log scale gives equal space to equal percentage moves. For an asset that has risen many times over, the log scale gives a truer picture of the long-term history.
- Trading pair: a coin charted against the dollar can look very different from the same coin charted against Bitcoin.
- Data source: prices and volume differ a little between exchanges. Low-liquidity coins can show wicks on one exchange that never appeared on another.
The Limits of Technical Analysis
Chart reading is about probabilities, not predictions. Crypto prices react to news, regulation, hacks and exchange failures, none of which appear on a chart beforehand.
Reported volume is not always reliable. On thinly traded coins, a few accounts can paint a chart with artificial trades. Regulators have warned about this repeatedly. The U.S. Commodity Futures Trading Commission's advisory on virtual currency trading covers volatility and manipulation risks, and the SEC's Investor.gov crypto assets page collects its investor alerts.
Short-term trading is also hard to do profitably. The SEC's day trading overview describes day trading as extremely risky and says it can result in substantial financial losses in a very short period of time.
Common Charting Mistakes
- Stacking indicators. Several momentum indicators built from the same prices repeat the same information.
- Confirmation bias: looking only for patterns that support a trade you already want to make.
- Ignoring volume. A breakout on low volume is more likely to reverse.
- Drawing too many lines. A few clear levels on a high timeframe are more useful than dozens of minor ones.
- Trusting short timeframes on illiquid coins, where a single order can move the price.
A Simple Routine
Start on the weekly or daily chart and name the trend. Mark the two or three most obvious support and resistance zones. Check whether volume agrees with the latest move. Then add one momentum indicator if you want a second opinion.
Nothing in this article is financial advice.
Track on CoinMarketGuy
Every coin page has a price chart with market cap and supply data, for example the Bitcoin page. The trending page shows which coins are being searched most, and the homepage shows the Fear and Greed reading along with total market cap and volume.