Using cryptocurrency charting is an essential tool for traders, no matter what your trading strategy. Cryptocurrency arbitrage traders do not have as much need for charting as the trends aren’t significant in their trading decisions but cryptocurrency arbitrage day traders will definitely use charts to ensure they can get in and out of trades in a reasonably safe and effective way.
What is a cryptocurrency charting?
Cryptocurrency charting looks at the current price and also the historical prices of a cryptocurrency. By looking at historical data including price history, volume history and trend formations a trader can get a much better idea on where the cryptocurrency’s price will go. Obviously these factors can only give indications on where a cryptocurrency will go but it puts the odds heavily in your favor if your understand technical analysis.
Think of charting like counting cards in poker or blackjack. Just because you can count cards doesn’t automatically ensure you know what the next hand will be but it sure gives you a much better chance of winning. Imagine all other players had each got an ace and you hadn’t taken any notice of what other players cards were and you bet big hoping to get an ace to make a winning hand. Not very smart, right? Well not doing your technical analysis before placing a trade is very much the same thing.
Difference between fundamental and technical analysis
The two main types of analysis of a cryptocurrency’s value are technical and fundamental.
The fundamental analysis examines the underlying assets intrinsic value, economic conditions and other qualitative and quantitative factors.
The technical analysis evaluates future cryptocurrency value by looking more at the statistical data (charts) and relies on price history and volume history to determine trends and pattern formations.
Different types of charts
The most basic type of charts comes in a line chart. Line charts only display closing prices over a given period to form a line. This is fine for a quick overview of a cryptocurrency but not very detailed overview to draw proper conclusions from.
Candlestick charts are the trader’s choice when it comes to technical analysis as it allows the trader to see the opening price, closing price and also the highest and lowest price of the day.
The individual candlesticks themselves will illustrate the time periods overall sentiment whether that be a day, week or month. Then all of the candlesticks together will form patterns to give a more detailed illustration of the cryptocurrency’s past performance and a probability of future price.
There are so many different types of patterns that advanced traders will look for such as the pennant, ascending triangle, descending triangle, triple bottom, inverse head and shoulders, flag continuation, double top and the falling wedge to name just a few. These chart patterns have historically given traders the heads-up on which direction the stock will go next. Many of them will signal a ‘breakout’, which can be the most revered period seen on any chart. This is the time the underlying asset breakout of it’s current trading zone and has the largest jumps in price. But be warned it can also breakout in a downward direction. Unless you know how to recognize the set-ups for a cryptocurrency to breakout on a chart then you may get caught out.
Pattern recognition is an integral part of cryptocurrency charting and therefore cryptocurrency trading. It is highly recommended that anyone that is serious about making money in the cryptocurrency marketplace should take the time to learn about charting and pattern recognition.
Similarities between cryptocurrency and Forex trading
It’s not hard to see the similarities between cryptocurrency and Forex trading. After all they are both just a form of currency trading. If you want to become the most well rounded trader then it makes sense to understand multiple markets and multiple trading systems. Whether its arbitrage trading, cryptocurrency trading, cryptocurrency arbitrage day trading or Forex trading the more you know and understand the more chance you have to make profitable decisions.
The best way to understand exactly how the Forex markets work is to learn from the best. The Forex Trading Crash Course can teach you skills that will carry over to all markets whether its Forex, stocks or cryptocurrency.
The Forex Trading Crash Course will teach you how to start trading from scratch. Its shows you the most common mistakes Forex traders make and how to prevent them happening to you. Learn breakout trading, candlestick charting and how to identify trends on Forex charts and cryptocurrency charts. Learn about Forex correlation trading, scalping and most importantly risk control.
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