Whether you already own cryptocurrency or plan to get some, sooner or later you’ll want to know how much the cryptocoins are worth when converted to your currency of choice.
Later, you may want to know whether to hang onto your coins or to sell them – hopefully making a little profit in the process. However, analyzing price charts and understanding trading terms from the financial world can be rather daunting, especially for the beginner.
This guide serves as a useful primer of the basics.
Methods for predicting price trends
Forecasting price movements of anything traded at an exchange is a risky probabilities game – nobody is right all the time. Many traders have lost lots of money, if not their life savings, into such attempts.
The two main approaches to predicting price development are called fundamental analysis and technical analysis. While fundamental analysis examines the underlying forces of an economy, a company or a security, technical analysis attempts to forecast the direction of prices based on past market data, primarily historical prices and volumes found on price charts.
Where to find bitcoin price charts
To perform technical analysis on BTC price and volume history, you’ll need bitcoin price charts that display data in a more readable manner than just plain number tables.
Good places to start are the charts on Coindesk’s Bitcoin Price Index.
Since BTC is the most commonly traded currency, it is a great starting place for learning to read charts as it has a lot less volatility and straight-out manipulation than other altcoins. Once you know what a proper chart looks like, you can then examine alternative currency charts.
To start with: a simple price chart
The most basic type of price chart displays prices as a line:
Closing prices of any given period of time (a month, a week, a day, one hour, etc) are used to draw the price line. This kind of chart can be used to get a quick overview of what prices have been doing lately, but traders need more data to draw their conclusions.
Trader’s choice: the candlestick chart
The most widespread type of chart among traders is the candlestick price chart, as seen below:
In addition, the color of the candle body indicates whether the closing price was higher than the opening price (usually a green bar, called an ‘up-bar’) or lower than the opening price (usually with a red body, called a ‘down-bar’).
The candlestick chart belongs to the family of OHLC (open high, low close) price charts, but there’s a multitude of other chart types/styles to suit any advanced trader’s preference.
Another type worth mentioning is the non-time based (NTB) range chart. Beginners may find them less intuitive and more difficult to grasp, however.
Candlestick price charts contain a lot of useful information for the skilled trader’s eyes, such as whether a candle’s spread is wide or narrow (illustrates the difference between high and low prices), where the closing price is relative to the high and low etc.
Together with the patterns that groups of candlesticks form, this is what traders base their trend biases on: either bullish (rising prices), bearish (falling prices) or ranging sideways.
In our next article, we’ll take a look at Depth Charts and understanding buy/sell walls in cryptocurrency– along with how it can be manipulated to influence pricing trends and trick unsuspecting traders.