Reading Crypto Charts & Indicators to Trade Confidently
Reading cryptocurrency price charts and the various indicators that can accompany them can be a daunting task for a beginner who is interested in making informed trades. In this post I will be discussing how to read charts with the indicators that we include by default in the Coygo application: MACD, RSI, HV and Volume.
If you’re interested in a secure multi-exchange cryptocurrency trading terminal which lets you trade on every exchange without your API keys ever leaving your machine, we invite you to sign up for the Coygo beta at coygo.app!
Note: This is only a guide on how to read information on charts, this is not financial advice. Always consult with a professional and never invest more than you’re willing to lose.
Real world example: BNB jumps 10%
We will be using the following chart as an example to learn how to read a chart. BNB jumped up in price by about 10%, wouldn’t it be nice if we could have used our charting tools to catch the signal and buy it before the rise and sell it afterwards for a quick profit?
Example chart of BNB rising by about 10%
The basics: Interval
The very first thing you need to know is that every chart can be shown on different time intervals. This will determine how far back in time the chart will initially show, and also how some charts and indicators will be shown and calculated. For example on the candlestick price chart, each candlestick represents one interval (in the example below, 5 minutes).
If you are looking for long-term investments you will probably be looking at longer intervals as you might not care about price movements in the past 30 minutes as much as you do the past 30 days or 6 months. If you are day trading crypto and are looking to purchase an asset and sell it within a few minutes or hours, you will probably be looking at shorter intervals such as 5 minutes.
The 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.
Price candlestick and volume indicator
RSI Indicator: Relative Strength Index
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. We can see in the chart below that while the price was rising quickly, the RSI jumped above 70 before the price began to drop again.
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.
MACD indicator: Moving Average Convergence Divergence
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. In the chart below we see this happen at the beginning of both major price increases at 09:00 and 13:30 on the x-axis.
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. In the chart below we see this happen at 12:00 and just before 15:00 on the x-axis. If a trader had bought at 09:00, sold at 12:00, bought at 13:30, and sold just before 15:00, they would have taken profits on both trades.
HV indicator: Historical Volatility
HV is a measure of the volatility of an asset’s price. This is calculated by determining the average deviation from the average price of the asset in the given time period. This doesn’t necessarily provide a buy or sell signal, but it can show the amount of risk related to a market. Higher risk can mean a higher profit potential, but also a higher loss potential.
A higher HV means you can make higher returns, but at a risk of a higher loss as well.
A higher HV means you should use a wider range of stop-loss when placing stop-loss orders since the price can swing drastically.
Putting it all together
Alright now that we have a better understanding of how to read these indicators, let’s apply what we’ve learned and look at the chart again.
I hope you found something useful in this post! Reading charts can be intimidating but the many indicators available to you can be great tools to help you find buying and selling opportunities and make informed decisions when trading. We have chosen these specific indicators to be used within the Coygo application because we think they combine to provide a good high-level view of the current trends and allow quick actions to be taken, but you always have the option of using others as well.
If you trade cryptocurrencies and other digital assets on exchanges such as Binance, Poloniex, or Coinbase Pro, we welcome you to give Coygo a try. You can sign up at coygo.app. Coygo allows you to track your portfolio, submit trades, execute transfers, browser market data, and a whole lot more across all of your connected exchange accounts, and your API keys ***never ***leave your machine.
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