In this post, we’ll look at Bitcoin price charts and how to read them. You’ve probably seen these charts with lines going up and down like a roller coaster, and thought, “What’s all this about?” Well, here we are, explaining you the basics.
First things first, let’s get to grips with the essentials of the chart. A Bitcoin price chart tracks the value of Bitcoin over time. The x-axis represents time, and the y-axis represents price. Simple, right? But there’s more to it than meets the eye.
The Candlestick
One common type of chart you’ll come across is the candlestick chart. Each ‘candle’ gives you four key pieces of information: the opening price, the closing price, the highest price, and the lowest price during a specific time period.
- The Body – If the candle is red colored, Bitcoin closed lower than it opened. This is called a bearish candle. If it’s empty or a green color, Bitcoin closed higher than it opened, making it a bullish candle.
- The Wicks – These are the thinner lines above and below the body. They show the highest and lowest prices reached. They’re also called ‘shadows‘ or ‘tails‘. Wicks can be pretty extreme at times of sudden price drops, but don’t let that worry you when they occur, they often return back to within bounds.
Spotting Trends
Now, let’s talk about trends. When you’re looking at a chart, you’re doing some form of investigation. You’re looking for clues in the form of patterns that can tell you where the price might be heading next.
- Uptrends – If you see a series of higher highs and higher lows, that’s an uptrend. It means buyers are in control, and the price is likely to go up. In the chart displayed in the first paragraph you can see the first part of almost only green candles, displaying an obvious uptrend.
- Downtrends – The opposite is true for downtrends. Lower highs and lower lows mean sellers are ruling the roost, and the price might drop. In the beforementioned example chart, this would show in consecutive red candles.
Support and Resistance
In the world of Bitcoin charts, two terms you’ll hear a lot are ‘support’ and ‘resistance’. These are the price levels where the majority of traders feel Bitcoin will move in the opposite direction.
- Support – This is the price level where buying interest is significantly strong and surpasses the selling pressure. It’s like a safety net preventing the price from falling further. Support levels are critical in bull-runs, moving up taking steps by establishing new support levels, instilling trust with traders.
- Resistance – Think of this as a ceiling. It’s where selling interest overcomes buying pressure, stopping the price from climbing higher. When certain resistance levels have been passed, this could lead to new gains in price.
Volume Matters
Don’t overlook the volume! It’s represented by those bars (and lines) at the bottom of the chart. Volume confirms the strength of a trend. A price move with high volume is a strong signal, while a move with low volume might just be a false alarm.
Indicators and Oscillators
Lastly, we have indicators and oscillators. These are complex mathematical formulas that help predict future price movements.
- Moving Averages – These smooth out price data to identify trends over a certain time. In the Bitcoin price chart as used above, you can see the three colored lines representing moving averages of the past 7, 25 and 99 days.
More Advanced
- Relative Strength Index (RSI) – This tells you if Bitcoin is overbought or oversold. It is a momentum oscillator that measures the speed and change of price movements. It moves between zero and 100. Traditionally, RSI is considered overbought when above 70 and oversold when below 30.
- MACD – The Moving Average Convergence Divergence indicates the momentum of the market. It is a trend-following momentum indicator that shows the relationship between two moving averages of the price. The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA.
There you go! In a nutshell, reading a Bitcoin price chart isn’t just about lines and patterns. It’s about the information they give you by the story they tell. And now, you’re ready to interpret that story.