There are a lot of things that college doesn’t teach you. How to read bitcoin charts, for instance, or how to fold your laundry the way mom does at home. And yet, a lot of things you don’t get to learn in college are the things that matter the most in today’s world.
It certainly helps to have a cupboard full of neatly folded clothes. And, it most definitely helps to know the basics of how to read bitcoin charts.
But, before you can read them, you should probably know what they are.
What Are Bitcoin Charts?
Bitcoin charts depict the prices of bitcoin in the market at different time intervals. You can find bitcoin charts on multiple bitcoin trading platforms and view prices in various currencies. While learning how to read bitcoin charts, you can also track bitcoin prices over time intervals as broad as one year or as granular as one minute.
When it comes to bitcoin, there are two approaches to price analysis – fundamental analysis and technical analysis. While fundamental analysis deals with the underlying reasons behind changes in the economy or a particular company, the technical analysis predicts prices based on historical price data.
Analysists use this type of technical analysis for Bitcoin charts. They are a convenient way to forecast where prices will go in the future, and you can decide whether to buy or sell based on this forecast.
Why Are They Important?
If you’re looking to buy or sell bitcoin, your first instinct may be to Google its current market price. However, bitcoin prices are like share prices – they’re always moving. So by the time you’ve closed your Google tab, logged into a bitcoin marketplace, and hit the ‘Sell’ button, prices will likely have changed.
Bitcoin charts track the changes in price over a period of time, based on historical price data. In other words, these charts give you an indicator of where the bitcoin price is likely to be, based on where it has already been.
Different charts offer different levels of detail, but this is the underlying principle for all charts. So once you have learned how to read bitcoin charts, you can use past data to make an informed choice about when to buy or sell your bitcoin.
Where to Find Bitcoin Charts
There are several bitcoin price charts available online for you to track prices. The Bitcoin Price Index by Coindesk is a useful starting resource when you're just figuring out how to read bitcoin charts. You can also check out FX Street for more detailed insights.
Before You Begin: What to Remember About Bitcoin Prices
If you’re planning to enter the cryptocurrency market, learning how to read bitcoin charts is essential. However, it is crucial to remember that these charts only show the average prices of bitcoin. In reality, there is no single price for bitcoin at any time. Like any tradable asset, the price of bitcoin often fluctuates because of speculation, public sentiment, or the vagaries of supply and demand.
In addition, different rates prevail in different markets based on the volume of bitcoin available and the trading fees involved. Nonetheless, average prices are a good indicator on the whole for where you should put your money next.
How to Read Bitcoin Charts
There are three main types of bitcoin charts: the line chart, the bar chart, and the candlestick chart. Each of these has its own advantages, and you'll need a solid understanding of all three types if you're looking to become a bitcoin trader.
If you’re just starting to figure out how to read bitcoin charts, the line chart is the best way to go. It gives you price information at a glance for whichever time period you choose.
The line chart is in the form of a simple graph that highlights a sequence of price points. The Y-axis features prices, while the X-axis features the time period for which you wish to check the prices.
Typically, you can set this to prices per hour, day, week, or month. Each point on the line chart depicts the closing prices of bitcoin at the end of each time interval.
How does it work?
A line chart makes use of a simple linear scale, which reflects the average prices of bitcoin across markets. In this type of chart, all price changes have equal weight, be it a doubling of prices or a 5x increase. By choosing your preferred time interval, you can see where prices closed. That will give you a good idea of how much prices are fluctuating.
You can also track the price of bitcoin in different currencies. For instance, you can plot two line charts – one in USD and one in GBP – to see how bitcoin is faring in terms of dollars and pounds.
A chart with a linear scale is a great reference when you’re just learning how to read bitcoin charts. However, they leave out a couple of essential factors. First, the line chart fails to capture the volume of bitcoin traded during a particular time interval.
Secondly, and even more crucially, it fails to give different price changes different weights. Some line charts seek to capture this information by using logarithms – where equal percentage changes in price appear at the same vertical distance from the X-axis.
Pros and cons of a line chart
We can sum up the pros and cons of a line chart as follows.
Once you have gotten used to reading a line chart and predicting price movements based on closing prices, you can progress to a bar chart. This allows you to check the opening as well as the closing prices over time for a more comprehensive bitcoin price analysis.
A bar chart is a series of vertical lines with each line representing vital price information for a particular time period. With the help of a bar chart, you can look at aspects such as the highest and lowest prices for any specific time interval. Bar charts also include the opening and closing prices.
The opening price is depicted by a dash at the left side of the bar, while a dash at the right side of the bar represents the closing price.
Just like with a line chart, the Y-axis for a bar chart depicts bitcoin prices, while the X-axis represents the time intervals, which you can set to as granular as one hour or as broad-spectrum as a month.
How does it work?
Reading a bar chart is simple once you know what the dashes represent. If the left dash is lower than the right dash (i.e., the closing price is higher than the opening price), it indicates a price increase and the bar is colored green or blue. If the left dash is higher than the right dash (i.e., the opening price is higher than the closing price), it indicates a drop in price and the bar is colored red.
A bar chart is a more comprehensive option than a line chart for price prediction. However, this type of chart again fails to take the impact of volume traded into account. It is a reliable option for those who have familiarized themselves with line charts and now want more detailed information on how to read bitcoin charts.
Pros and cons
Here are some of the pros and cons of the bar chart.
Once you’ve got the hang of how to read bitcoin charts and want more in-depth price information that can help you trade profitably, the candlestick chart is your best bet. Based on a 17th-century Japanese technique of analysis, this chart features not only closing prices but also the opening prices of bitcoin. So you will have an even clearer idea of how the market is moving. It’s also somewhat similar to a bar chart, so you can pick it up easily if you’ve learned how to analyze bar charts.
The candlestick chart is so named because a long vertical rectangle represents each plot point with a straight line at each end. In other words, it resembles a candlestick with two wicks. The X-axis, again, reflects the time period you choose, and the Y-axis depicts the prices.
To help you discern price information at a glance, a candlestick chart uses two colors – green and red. A green candlestick means that prices went up during that particular time interval (indicating a bullish trend), while a red candlestick means that prices fell (indicating a bearish trend).
Each candlestick, green or red, has four parts that you need to remember.
This indicates the price at the beginning of the time interval. For a green candlestick, this is the bottom part – and for a red candlestick, this is the top.
This is the price at the end of the time interval. For a green candlestick, this is the top part – and it is the bottom for a red candlestick.
The tip of the top wick indicates this – it shows the highest price that bitcoin hit during that time interval.
This shows the lowest price that bitcoin hit during the given time interval and is indicated by the tip of the bottom wick.
How does it work?
When it comes to learning how to read bitcoin charts, the candlestick chart is the most complicated of the three. However, by keeping these four parts of a candlestick in mind, you can deduce more details about price movement over a period of time than from a simple line or bar chart. You can now see the extremes that bitcoin price hit (as indicated by the wicks).
In addition, the length of the candlesticks indicates how much prices changed from one time interval to the next. The length of the wicks indicates how much prices fluctuated in a given time interval.
To further enhance the information you get from a candlestick chart, you can combine it with volume. Your trading chart will feature a menu option that allows you to plot the volume traded over each time interval. The volume will appear in the form of a bar chart at the bottom of the page.
You can now look at both charts to make more accurate deductions about price movement over time. For instance, a fall in bitcoin price combined with low trading volume is relatively less bearish (which would indicate a downward turn for prices in the long run) as compared to high trading volume and falling prices.
Pros and cons
Some pros and cons of the candlestick chart are as follows.
Which Bitcoin Chart Should You Count On?
It takes time to learn how to read bitcoin charts accurately enough to make consistent profits. Moreover, you need to keep in mind that any chart, however detailed, does not take public sentiment and external market conditions into account. Hence it is only an approximation of price movement.
So if you really want to make big money off bitcoin trading, you’ll need to spend a reasonable amount of time analyzing the bitcoin market and the factors that influence it.
If you’re just dipping your toes into the subject of how to read bitcoin charts, a line chart is an easy and effective way to start. A bar chart is a decent step-up from the line chart, as it gives you more details on how prices opened and closed over each time period. A candlestick chart goes into even greater detail about price fluctuations.
Overall, each of these three charts has its own merits when you’re learning how to read bitcoin charts. They are definitely worth looking into.
Do you have any experience with reading bitcoin charts? Tell us about it in the comments below.