Reading the Charts
To a first-time crypto investor, the maze of candlestick and trend indicator charts present on most exchanges can be intimidating, even bewildering. Some folks spend years earning advanced degrees to learn how to read these charts properly. You don’t have that kind of time, so what chance do you have of making sense of the market with charts alone?
A pretty good one, to be honest. You don’t have to know the ins and outs of every variety of chart. You don’t even really have to learn how to read them in complete detail. Knowing the broad strokes is enough to identify likely buy-in points and save yourself from heartache later.
The most basic kind of chart you’re likely to encounter is a candlestick chart. This displays the day’s price as a series of little hashes resembling candles with wicks at either end. Many are color-coded. Green candles represent a rising market, while red candles represent a falling market. Green candles will generally be aligned along an upward-sloping line, while the opposite is true for red candles.
The fat part of the candle represents that day’s opening and closing price. Green candles display the closing price at the top and the opening price at the bottom, while red candles display the reverse. The “wicks” or shadows at either end of the candles represent the day’s high and low prices.
Here’s how to make candlestick charts work for you. In technical analysis, there are certain indicators that can be used to gauge where prices will be heading in the short term. As a new investor, the main ones you’re going to watch for on candlestick charts are the hammer and inverted hammer patterns. These are relatively easy to identify and represent market reversals. A hammer pattern consists of a candlestick with a short, fat colored section and a long downward-pointing wick, looking much like a cartoon hammer. This pattern indicates opening and closing prices relatively close together with a significant low reached during the day. That means that market sentiment is down, and the price is likely to continue falling. Falling prices are good for initial Bitcoin buy-ins. The lower the price at the buy-in, the more Bitcoin you get for your money, so to speak.
An inverse hammer presents the opposite picture; a short, fat candlestick with a long upward-pointing wick. This again signals that opening and closing prices are close together, but buyer sentiment is strong, so prices are likely to move up soon. That means you ought to buy in sooner rather than later – if you choose to buy in at all – because Bitcoin is going to get more expensive as time goes on.
Reading the Market
Once you learn to identify a few simple technical indicators yourself, it’s time to find out what the market at large thinks. This facet of research is popularly known as market sentiment, but it really just means conducting an informal poll of what people already active in the market are doing. Find real-time forums where active Bitcoin traders are talking about the market and the positions they are adopting.
This has two benefits for you. The first is a superficial read of what other investors are doing and what they identify as good buy-in points. Sometimes, it’s best to bet against the herd – far more often, it is not. If you’re privy to some golden insight or information, by all means, follow that. But for the vast majority of day-to-day trades, it pays to follow along with the market at large. Think of it as similar to the ask-the-audience option on the TV show “Who Wants to Be a Millionaire?” The more informed folks involved in crowdsourcing a decision, the more likely the consensus will be the right decision.
The second benefit is a bit more esoteric. Market sentiment has the proven but odd habit of coming true, even in the face of factual information to the contrary. It works like this. Bitcoin buyers think the price is going to go up, based on any number of factors. So, they buy in, making the price actually go up with nothing more than their dollars and their optimism. Likewise, if the market believes Bitcoin prices are going to fall, investors pull their money from the market. This causes the prices to tank in line with their expectations.
Getting a handle on what other investors are doing and thinking is a good way to predict likely buy-in points.
The final point we want to stress is that only you know your ideal buy-in level. The common wisdom in crypto is to never risk more than you’re willing to totally lose. If Bitcoin’s minimum buy-in level would put you in danger of missing a rent payment, it’s too expensive for you – even if you potentially miss out on a golden bull run. Nothing is certain in the crypto sphere, so it pays to be extra cautious with your funds. There is the potential to make powerful sums of money investing in Bitcoin. The flip side of that is it’s easy to watch thousands of dollars evaporate overnight due to forces beyond your control. Buy smart and buy safely.
Mary Ann Callahan, Blockchain and Bitcoin Expert/Consultant, Freelance Journalist, Cex.io
Mary Ann Callahan was born in Madrid, Spain. She is an expert in Bitcoin and Blockchain-related topics. Her experience has spanned across the high technology and data worlds for more than a decade, as well as many other industries, from her current work as a Journalist and Blockchain authority/consultant at Cex.io, a cryptocurrency exchange, to work at Social Media Marketing Manager at Boston Globe Media, and within the Morrison & Foerster LLP. She holds a B.S in Economics from Yale University, and a M.S. in Journalism from Columbia University. She has written on many technical topics, especially related to Blockchain security, Bitcoin regulations for many different countries, and related purchase and help guides.