How To Read A Chart

What is a chart ? 📈

A chart basically shows the exchange rate between two goods:

• In Forex Market: we can observe the rate between two currencies (ex: EUR/DOLLAR/GBP)
• In the Share Market: we can observe the rate between currencies (ex: DOLLAR) and the price of a company share (ex: Tesla “TSLA”)
• In the Cryptocurrency Market: we can observe the rate between Currencies (ex: EUR) or even Stablecoins (ex: USDT/USDC/BUSD) and the price of a Crypto Asset (BTC/ETH)

Charts and Time frames

The time frame you select will determine the appearance of the chart you are analysing.

In fact, if you configure the chart in “1h”, each price “Candle” will represent a 1h price action. This methodology is applicable each time you will switch the time frame of the chart (ex: 1 day chart = each Candle represent 1 day price action)

Depending on the time frame you will observe, the price action will have different meanings as we define tendencies in 3 major frames:

Long-term trend (more than 6 months), intermediary trend (between 3 and 6 months), short-term trend (less than 2 months).

It is important in your future analysis to be aware of these trends so you can take the best decisions (usually by starting your analysis on longer time frames and refine the frame little by little to analyse the current trend.

Candlesticks charts

Candlesticks charts will be our favourite type of chart as it shows the whole price action (opening and closing price of candles as well as highest and lowest price of exchanges during the time frame you selected), in opposition of a line chart that will only display closing prices to draw a line. Therefore, on the line chart you can miss some precious information.

How to read Candlesticks

On both, Green and Red candles you will find:

Upper shadow: price action between the highest price of the time frame (1 h / 1 day) and the opening/closing price below.

Body: usually a solid color (Green or Red), if the price close lower it will go Red color, or Green color if it close Higher. The body is contained between both opening and closing price.

Lower shadow: price action between the lowest price of the time frame (1 h / 1 day) and the opening/closing price above.

To complete your readings on Candlestick, there are numerous patterns that can be analysed. Here is a quick overview of some patters you can find out on charts (Provided by Binance Academy)

Candlestick analysis should not be restricted to the previous picture. There is numerous candlestick patterns that can be observed on charts.

Charts and indicators

Indicators are tools to be used in addition with the price action and the time frame you are observing. Again, using a longer time frame will help you better understand the trend of the market.

Simple Moving Average

One of the most common indicators is Simple Moving Average (SMA):

This indicator is calculated by adding up the closing prices of a set period and dividing that number by the time within that period. Here is a list of most used SMA:

• 20 Days Moving Average
• 50 Days Moving Average
• 100 Days Moving Average
• 200 Days Moving Average

One interesting way to analyse these SMA is by observing when shorter time frame SMA (like the 20 days) will cross over or below the following SMA (here it is the 50 days Moving Average).

Commonly when the short SMA (20 or example) is above the long one (50 or example), the market is considered Bullish.

On the opposite side, when the short SMA is below the long one, the market is considered Bearish.

If the 20 days SMA cross below 50 days SMA, it does mean that the 20 days SMA was already above the 50 days SMA and is currently losing momentum. By crossing below the 50 days SMA, it indicates that the price is not ready to go higher on these time frame and shows bearish signs.

(The Orange line is the 20 Days Moving Average and the Blue line is the 50 Days Moving Average)

In this example we are using shorter timeframe SMA but we do recommend to use longer time frame combined with medium timeframe to have a great overview of the market (like 100 and 200 days SMA). The event of a crossing is usually taken as a ‘sign’ for traders to take new positions. This phenomenon is even more applicable in larger time frame.

In the next Medium articles, we will cover more in depth other indicators: RSI, MACD, Stochastic… That can complement the SMA analysis.

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