Crypto charts are part of every exchange. They are indicative of the crypto prices and movements. It has several essential components for the trader. This article covers the useful details and how they will be useful for traders.
Market capitalization
Market capitalization is the most commonly used crypto chart feature. It is the metric that shows the relative size of a cryptocurrency within the market. It is calculated by multiplying the market price of a coin by the number of coins in circulation.
Market capitalization = current coin price * circulating supply
For example, a coin currently trading at $ 5 with a market supply of 1,000,000 coins has a market cap of $ 5,000,000. (5 * 1000000 = 5000000).
Market capitalization provides insights into the performance and size of a coin. You can use this to create stability. What is worrying, however, is that most people confuse market capitalization with cash inflow. The concepts are different as the cap is based on the price at a given point in time. Every decline and market cap take a hit.
Market capitalization is a reliable indicator of market stability. It shows the possibility of price movements in a coin.
A high market capitalization means a stable currency. However, these are associated with low growth prospects and low profit margins.
The low market cap may be unstable, but it offers better profit margins. They will likely go up after a while. They are better with a medium cap that offers both stability and profit prospects. Market capitalization also works with liquidity for value.
The bullish and bearish price movements
The bullish and bearish price movements are part of the crypto charts. They are the indicators of the current market situation. It’s all about whether the market is on a winning or losing trend. Traders use these to decide whether to sell or buy.
A bullish run occurs when the currency is on the rise. This is the time when traders are in a positive mood. It is time to buy the coins as they increase in value. The bull market is the result of a healthy economy. It can take weeks, months, or years.
Cryptocurrencies have seen an upward trend in 2020. The run is the result of traders’ search for newer investment opportunities following the coronavirus pandemic. Most Altcoins and Bitcoin have seen a sustainable increase in value. They will likely hold up for a while.
A retrograde run occurs when the asset begins to depreciate in value. This is mainly due to negative economic effects. This is the time to sell assets before they lose value. Still, there is a need to do more research to avoid selling based on fake bear prices.
Technical analysis
Technical analysis is also essential when studying the crypto charts. Asset prices don’t happen accidentally or by accident. They rely on various existing and past market factors.
The technical analysis includes the analysis of all past and future market opportunities. Traders can then use the results to make investment decisions.
Technical analysis is mainly based on the Dow theory. The theory recognizes that crypto prices are not random. They depend on variables like demand and regulations. It takes into account all current, past, and upcoming details. These details help predict market behavior. Dealers react similarly in similar case scenarios.
The Dow Theory examines several aspects of the market. One of these aspects is market movement.
The market movement occurs in 3 phases. The most important one can last from a single year to several years and can mean a huge change in price.
The middle swing lasts from ten days to a few months. It comes with price changes of around 33% – 66%.
The short swings are within hours to a month. All market movements can be either bullish or bearish.
Technical analysis also plays a major role in the market trend phases. The trends start with accumulation. This is the point where investors start buying or selling assets in anticipation of movement. After a while, the other traders pick up to get into the absorption phase. It ends in a distribution phase in which the market adapts to the new values.
The analysis covers more than a single currency. Any price movement should be reflected across the market. For example, a bullish trend in Bitcoin should be reflected on Ethereum. This means that the averages of the assets confirm each other. The trading volume must also reflect price movements.
Relative Strength Index
The Relative Strength Index (RSI) is an analysis tool that determines the price changes of assets and the speed of price movements. Traders use the RSI to determine whether the crypto is oversold or overbought. Depending on the market status, you can make the purchase decision.
RSI compares the amount of recent gains to the losses in determining crypto status. It is measured on scales from 1 to 100 and appears as a wavy pattern on the graphs.
The formula for RSI is;
RSI = 100 – (100 / (1-RS))
RS = ratio between the days the coin was up and the days the currency was down.
Don’t draw your calculators yet; most exchanges report these values by default. You just need to understand the values in trading.
An RSI above 70 means the asset is overbought. There is a threat of a decline in the share price. This is the ideal time to start making profit by outsourcing your assets. Other risk-taking traders can also use short-term positions to profit from falling prices.
An RSI below 30 means the asset is oversold. At this point in time, the prices are some of the lowest. It is the point of buying the assets if you are looking for the upswing. Prices are likely to rise soon.
Still, you need to be careful when using RSI. It is prone to false purchases and sales due to a massive rally or a drop in prices. Use the RSI in conjunction with the other analysis tools.
Bottom line
Crypto charts are essential to determining the present, past, and future value of the coin. It helps traders know when to sell and buy. Any trader who uses the charts properly can be assured of profits.
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