How to Read Crypto Charts & Analyze Order Books
Awhile back I wrote an article on how to read charts and indicators when trading cryptocurrencies and digital assets. Since then we’ve added a number of helpful tools to the Coygo application to assist traders in their day-to-do operations and make it easier to quickly analyze market data, so I thought it was about time for a new guide. This time I’ll go over charts and indicators like RSI and Bollinger Bands, but I’ll also focus on other real-time insights and tools that Coygo provides, including order book superiority analysis, trade activity analysis, arbitrage analysis ,and more.
Note: Some of the charting basics will be familiar if you’ve read our previous guide, so feel free to jump ahead to the more interesting stuff if you’re not a beginner!
Price candlestick and volume indicator
Chart basics: Price candlesticks and volume
Two things that are easy to understand and will always be important are price and volume. Price is how much an asset is trading for, and volume is the total number of assets that has been traded on the specified market.
In Coygo we always default to showing prices with a candlestick chart. Each candlestick has two pieces, a vertical line and a vertical bar called a body. The top of the vertical line is the highest price during that interval (5 minutes in the example below), and the bottom of the vertical line is the lowest price during that interval. The ends of the vertical bar represent the open and close prices, meaning the price at the beginning and end of the interval respectively. The body is red in color if the close was below the open, meaning the price went down during that interval. The body is green in color if the close is above the open, meaning the price went up during that interval.
Volume is visualized with vertical bars, each representing the total amount of assets/coins traded on that market during the specified interval. The color of the bar is simply the same as the color of the price candlestick: green if the close was higher than the open (the price went up), and red if the close is lower than the open (the price went down). An increase in volume can mean that there is more interest in an asset as more people are trading it, and can help identify when price movements are beginning to happen.
A large increase in volume after a price has been moving in a downwards trend can mean that many people think it’s hit a low and are now buying. This buy pressure has the possibility to cause a reversal and send the price trend upwards.
A large increase in volume after a price has been moving in an upwards trend can mean that many people think it’s hit a high and are now selling to take their profits. This sell pressure has the possibility to cause a reversal and send the price trend downwards.
Chart indicators: Relative Strength Index (RSI)
RSI is a momentum indicator that looks at recent price movements to help determine if an asset is overbought or oversold. If an asset is overbought, a reversal downwards is possible (but not guaranteed). If an asset is oversold, a reversal upwards is possible. It’s displayed as a single line with values between 0 and 100, and the range between 30 and 70 is highlighted a different color with a dashed line at both 30 and 70. This is because an RSI ≥ 70 is considered overbought, and an RSI ≤ 30 is considered oversold, so this highlighted region makes it easy to quickly see if either is true.
If the RSI is near or above 70, the price is probably moving upwards but it’s possible that it will be reversing back downwards soon so many traders might consider this time to sell and take your profits.
If the RSI is near or below 30, the price is probably moving downwards but it’s possible that it will be reversing back upwards soon so many traders might consider this time to buy.
Chart indicators: Moving Average Convergence Divergence (MACD)
MACD is a trend-following momentum indicator that can help identify and predict upwards or downwards trends in price. It compares the 26-period EMA (Exponential Moving Average) to a 12-period EMA. EMA is a moving average of the price that places a higher significance on more recent price changes than older price changes, helping to determine recent trends.
The MACD is visualized in three parts:
MACD Line — typically blue in color, this is a subtraction of the 26-period EMA and the 12-period EMA.
Signal Line — typically orange in color, this is a 9-period EMA of the MAD line’s values. This acts as a trigger for buy and sell signals.
MACD Histogram — The MACD histogram is the pink bars along the 0 line. This represents the difference between the MACD Line and the Signal Line.
When the MACD line (blue) crosses over to above the Signal Line (orange) and the histogram value is increasing, many traders consider this a signal to buy.
When the MACD line (blue) crosses over to below the Signal Line (orange) and the histogram value is decreasing, many traders consider this a signal to sell.
Chart indicators: Bollinger Bands
Bollinger Bands are an indicator that uses a set of lines plotted two standard deviations (positively and negatively) away from a simple moving average (SMA) of the asset’s price. There are three lines: a basic moving average (the middle dark red line), and an upper and lower band (the green lines above and below). The are between the upper and lower band is highlighted with a light green background, creating the “band”.
Many traders believe that the price will tend to stay within the band. So if you see the price nearing the top of the band, some believe that it’s probable the price will start moving back down to stay within the band.
When the upper and lower bounds get closer together, making the band become more narrow, this is called a “squeeze”. This marks a time period of low volatility, and many traders believe this can be a signal that an increase in volatility may be coming soon. The opposite is true as well, if the band becomes very wide this signals a time period of high volatility, and many believe this can be followed by a decrease in volatility.
Most trading activity occurs with the price between the upper and lower bound, within the band. When the price breaks outside the band this is called a “breakout”. This is a significant thing to occur, but it doesn’t signal whether the price will move up or down.
Depth charts are a very common tool for visualizing open bids and asks in an order book. On the left we see a green area chart representing all open bids(buy) orders. On the right we see a red area chart representing all open ask (sell) orders. On the bottom Y axis we can see the price, and where the two charts converge is the last traded price. So looking at the depth chart above, we see the last traded price (the current price) is around $8,165. Each area chart increases its height according to the overall sum of open orders up to that price. So if you see a large vertical increase in either chart, that means one or a few large orders are set at that price.
- A large vertical increase on either side is sometimes referred to as a “buy wall” or “sell wall”, because it looks visually like a wall. If you see a large vertical increase on the buy side, such as at around $8,100 on the chart above, that means that if the price moves down and eventually reaches $8,100 a lot of BTC will have to be sold at that price before the price keeps moving downwards. In this way, a trader or group of traders with a lot of money available can create large orders that make it difficult for the price to move beyond a certain point.
Order book superiority
Order book superiority
Now that we’ve covered the basics of reading charts and indicators, let’s move one to something unique to Coygo: order book superiority. This takes all open bids (buy orders) and asks (sell orders) within 5% of the last traded price, and calculates both the sum of orders as well as the total number of orders. Sum gives us how much overall value is waiting to be bought or sold, and count lets us know how many buy and sell orders there are. Green is used for all bid (buy) numbers, and red is used for all ask (sell) numbers. The bar graph below let’s us quickly visualize the difference between total sum of bids vs asks, with the percentage difference below it. In the screenshot above, we see “Order book superiority: Bids Diff: 21.64%”. This tells us that there is more money in open buy orders than open sell orders within 5% of the last price.
When there is a big difference between bid vs ask sum, this can mean that there is more interest by other traders in either buying or selling. If significantly more money is tied up in sell orders than buy orders, that may show that people are predicting the price is moving downwards .
When there is a big difference between bid vs ask count, this means that more individual traders are trying to buy or sell. If there is a higher bid sum, but a much higher count of ask orders, that may mean that there is only one or two large bid orders that are skewing the superiority, which can easily be cancelled to change the superiority. This is one way that other traders or bots can manipulate order books to make it appear like there is more interest in buying or selling than there actually is.
If order book superiority is looking at the future with open orders, Trade Analysis looks at the past with recent public trade activity. View trades as they occur in real-time and analyze recent trade activity on any exchange or market that Coygo supports. Compare recent buy vs. sell order count, and buy vs. sell cumulative sums on any market. On the left we see an area chart of the cumulative buy vs sell *sum *over time, with the high and low price for each interval overlaid with green and red lines. Above we see a bar chart comparing the total buy and sell sum. On the right we have a similar display, but this is for the cumulative buy vs sell count.
- One great use of this is to spot if a large increase or buy or sell volume is organic from a number of traders, or from a large order by a whale. If the cumulative sum of buys drastically increases over a short period of time, and the count of buy orders during that time period stays relatively the same, that tells us that one or a few large buy orders were made
Determining true order cost with Fill Calcs
When you place an order, it’s hard to know the true price you will be paying. If the last BTC price is $8,120 and the current ask is $8,121, that means that you can buy BTC for $8,121. But that’s only for however much that open order at $8,121 is for. If you want to place a large order and buy 5 BTC, you will likely work your way through a few orders. For example, maybe you’ll fill an order for 1.2 BTC at $8,121, then another 3.5 BTC at $8,125, and another 0.3BTC at $8,130. So you will actually end up paying more than the ask price of $8,121.
Coygo’s Fill Calcs lets you enter how much you want to buy, and it will calculate the total cost as well as show each individual order that you would be filling.
- If you see a price on a market that looks appealing, it’s worth your time to check the Fill Calcs first to make sure that you won’t end up paying more than you would on another exchange with a different order book. A better last or ask price doesn’t mean a better true cost. Fill Calcs helps you determine which exchange will give your specific order size a better price.
Finding crypto arbitrage spreads with Arbitrage Scanner
Alright, let’s move onto something a bit more advanced. One technique for day traders is to capitalize on arbitrage spreads between exchanges. If one BTC is being sold for $8,150 on Coinbase Pro, and $8,270 on Kraken, that is a difference of about 1.5%. A smart and quick trader can buy BTC at the lower rate on Coinbase Pro and sell it at the higher rate on Kraken, and profit on the difference. Using Coygo’s Arbitrage Scanner shown above, you can view spreads in real-time for any trade pair across every supported exchange. The largest spread is highlighted in the darkest shade of either red or green.
- If a significant spread is found (don’t forget exchanges charge fees, so to be profitable the spread will have to be larger than the fees both exchanges charge), you can quickly make the appropriate buy and sell on each exchange to capitalize and profit off of the price difference.
Master day trading with crypto trading bots
If you've made it this far you may be wondering what's next in your journey to master trading? Many traders who have developed a trading strategy that they like will turn to crypto trading bots to automate their trading. Trading bots let you define a set of rules for when and how to submit buy or sell orders and let automated software do the trading for you, allowing you to remove human emotions and never miss an opportunity.
Here at Coygo we've developed a fully automated crypto trading bot platform for day trading called Coygo Bots which includes a number of highly configurable pre-built strategies like crypto triangular arbitrage, crypto grid trading, and inter-exchange arbitrage. Coygo Bots can operate on intervals in seconds or even milliseconds so that you never miss a signal!
That’s a wrap!
I hope this guide helped you learn a bit about how to read charts as well as the various tools that Coygo provides to make informed decisions and trade with confidence, leading to a profitable trading strategy. We offer other tools that we didn’t mention in this guide, and there are plenty of other chart indicators out there that cater to a number of different trading styles and strategies.
If you want to try using Coygo while trading digital assets, it’s currently free to use during our beta. We would love to hear what you think so we can continue improving Coygo and ensure that we’re building the best possible solution.