Do you know how to read Bitcoin charts correctly? If not, check out this complete guide below!
Bitcoin is classified as a digital currency that you can easily convert into fiat currencies such as Rupiah or Dollars. Because of that, it has grown quite popular in the Indonesian cryptocurrency market. However, trading Bitcoin certainly has a high risk, especially if you do not have sufficient knowledge. To minimize this risk, here’s a full review of how to read Bitcoin charts!
What is Bitcoin?
Bitcoin is a form of cryptocurrency. This decentralized digital money appeared in January 2009 and was conceptualized by someone under the pseudonym Satoshi Nakamoto. Since it’s digital, buying Bitcoin won’t give you any tangible paper or coin. Only nominal balances are stored in an encrypted ledger.
This digital currency has high price fluctuations so its value can change quickly. Therefore, it is important to carefully track the Bitcoin chart’s movement to determine the right time to sell, hold, or buy. Here, we will be specifically discussing candlestick charts.
Bitcoin Graphics Component
On a candlestick chart, you will see a candle-like shape that displays the price of the crypto within a certain trading period. A trading period itself can refer to 1 minute, 15 minutes, 1 hour, 24 hours, or others. There are two types of candlesticks that you will see, distinguished by red and green.
The green candlestick is known as a bullish candle; it appears when the final price of Bitcoin is higher than its initial price. Meanwhile, the red candlestick is known as a bearish candle, when the initial price is higher than the end price. In each candlestick, there are four main components that you can find, namely:
- Open: the initial price at the start of the trading period.
- Close: the final price at the end of the trading period
- High: the highest price reached during the trading period.
- Low: the lowest price reached during the trading period.
How to Read Bitcoin Charts
There are many potential patterns that can be observed on a Bitcoin candlestick chart. Three of them are Doji, Hammer, and Shooting Star. Each pattern represents a different market situation, so you must carefully analyze it. Here’s how to read a Bitcoin chart according to the candlestick pattern that appears:
First, the Doji pattern indicates that investors are hesitant about the market price. It is characterized by the axes being equal in length at the top and bottom, but with a very thin body. This formation is most often seen on trading charts when the forces of sellers and buyers are in balance.
Next, the hammer pattern has little to no upper shadow; the lower shadow can be 2-3 times longer than the body of the candle. Not only that, in this pattern the asset price closes at a quarter of the range of the candle body. The hammer pattern usually indicates a possible bullish reversal. That is, the price will immediately reverse directions from a downtrend to an uptrend alias rising rapidly. This pattern also often appears when there are strong buyers who enter the Bitcoin market, with strong buyers taking control and lowering the price within the same trading period. This results in buyback momentum, when the closing price is higher than the opening price.
- Shooting Star
In contrast to the hammer pattern, if you see a shooting star pattern, it indicates that the asset price will soon fall. It is characterized by the shape of a candle that has little or no lower shadow. However, the upper shadow can be 2-3 times the size of the candle body. Not only that, it looks like the final price is in the lowest quarter of asset value.
This pattern indicates that buyers are taking over the market so that the value of the asset increases. However, selling pressure that is too large overwhelms the market so that asset values decline before the close of a period.
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