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Technical Analysis

Learning how to read crypto charts is an essential skill when trading cryptocurrencies.

calm trader

The industry term for deciphering charts is called Technical Analysis. Learning all the methodology of technical analysis, including all the jargon and strategies, can be a daunting task for beginners as well as experts. That’s why in this lesson I’ll keep it simple and cover charting basics. Learning the basics will help you to remain calm when markets are going crazy. Please don’t think you’re missing out by only learning the basics. Basic charting tools, like the ones below, are the ones I use most.

So why is it so important to learn this skill? Chart reading, or technical analysis, is a strategy used to predict the probable future price movement of a cryptocurrency. It will help you decide WHEN to get in or get out of a trade. If you don’t use charts to monitor a crypto’s price, you’ll be making investment or trading decisions blindly. You won’t know the trading history of a given crypto, and this puts you at a disadvantage.

The other strategy used by investors is called Fundamental Analysis. This strategy is used to determine the health or viability of a crypto project. This strategy is used to determine WHAT cryptocurrency has the potential to succeed, thereby making you a profit if you invest in it.

Note: The next course in the Get Started series is called Sell Crypto for Profit. In that course I will teach you the basics of fundamental analysis, then in the future I’ll design a course on Investing in Crypto where I’ll cover both these investing strategies in more detail. When they become available, you’ll find both of them in the Courses section of the website.

Price and Volume

Unlike the stock market, crypto markets are open 24 hours and day 7 days a week, which means the price is constantly changing. It seems most new crypto traders and investors spend a great deal of time watching prices go up and down. It’s easy to get caught up in the volatility, because crypto moves fast and moves a lot! In the crypto world a correction is measure by an 80% drop in price, while 40-50% downward moves are usually considered just a dip.

Since you’re already watching the fluctuating market price of your favorite crypto, let’s expand your knowing and teach you about volume. It’s the easiest indicator to follow with price.

“Trading volume is a measure of how much a crypto has traded in a given period of time.”

The BTC/USD chart below is a current chart showing prices from Coinbase. It’s a great example of price vs volume. It clearly shows the price rising steeply, while at the same time the volume is falling equally hard. What this tells me is the price can’t sustain it’s upward movement. There isn’t enough traders buying to keep pushing the price higher. What caused this short-term pump, I don’t know. If I really wanted to know, I’d review the news, maybe checkout Reddit posts to determine trader sentiment. Something caused people to get excited for a brief period of time.

BTCUSD volume

The Trend is your Friend

Identifying trends and trend lines is the next most important chart indicator. I find this indicator most helpful over a longer time period. Trend lines are diagonal lines drawn on charts and usually based on price highs or lows. They connect specific data points, making it easier for traders to visualize price movements and identify market trends. In general, the greater the slope of the line, the stronger the trend.

In the chart below it’s pretty obvious the trend is upward and it been moving upward for 10 months. I drew this line from the starting price to the ending price ignoring the highs and lows. At first glance it seems rather positive and one might predict the market will keep going up. When I look closer at this chart, I would be concerned that the volume is pretty flat. That might tell me this upward trajectory may or may not have the strength to continue upward. I would need more information to decide. However, one thing is clear there is a strong upward trend and as traders we’re taught the trend is our friend, don’t fight it. With that in mind, I would expect the overall trend to continue up with some pull backs along the way.


Support and Resistance

This is a simple concept but one that is difficult to master. The reason it’s difficult is due to the fact that choosing price support and resistance is very subjective. Timing is crucial. It’s often used by contrarian traders who like making money going against current market sentiment. It’s definitely an artform that takes practice.

Of course, no one really knows when a downtrend will stop or when an uptrend will start, but if done well enough it’s extremely useful for deciding when to get-in or get-out of the market. The ultimate goal is to buy at or near a support price and sell at or near a resistance price. Traders that get good at it often have great returns by catching the beginning of change in trend. Investopedia explains,

“Support occurs where a downtrend is expected to pause due to a concentration of demand (buyers).”

“Resistance occurs where an uptrend is expected to pause temporarily, due to a concentration of supply (sellers). 

How does one determine the support and resistance price? By looking at historical values and finding common high and low prices over time. As I said before, drawing support and resistance lines is an art, and the placement of those lines change depending on the timeframe and other factors.

The charts below are of BTC/USD and have a one-year time frame. They demonstrate linear support and resistance lines. Note in the support image, I didn’t select the lowest price. Instead, I selected price points that were slightly higher than the low because it gave me more touches to the resistance line. Also note in the resistance image I again didn’t select the highest prices. I chose a straight line where the high prices touched it more often. If I had used just this resistance line to determine when to sell my bitcoin, I would have missed the price going higher. And this is why chart readers review multiple indicators before making a final decision.

BTCUSD Support
BTCUSD Resistance

End Chapter

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