It is important for traders to know how to read a chart. To do this, a trader would need to look out for trend lines, trading volumes, time frames, and market cap. Let us look at what all these terms mean.
A trader first needs to identify trend lines. When reading a chart, the trend line is either going up or down. Stocks or cryptocurrencies will take huge dips but will also take huge climbs. Traders should use these trend lines to inform themselves and understand the market direction. This could lead traders to dig deeper and do more research to see what could have caused the big dips and climbs. Once the trend line is identified, a trader would look for lines of support and resistance. These are the levels that an asset trades within over time. Levels of support are prices that an asset is unlikely to drop below, and levels of resistance are prices that it is unlikely to trade above.
Trader also need to understand an asset’s historical trading volumes. Trading volumes can help traders understand a digital asset better. For example, there could be an increase in the trading volume when good or bad news is released, giving the trader a better idea of the overall participation and trend of an asset.
Another thing that traders should know is how different time frames can help them view the chart differently. First off, there are shorter time frames (E.g.: 15min, 1hr, 4hrs) and then there are longer time frames (E.g.: daily, weekly, monthly). Shorter time frames allow traders to see more detailed trading activity and can be helpful to see how any events that happened throughout the day affected the price or to see if any large orders impacted the market that day. Shorter time frames would also allow traders to see the market impact of outcomes of a point in time, such as the U.S. election. Longer time frames would allow traders to see overall trends of an asset, and many traders consider these to indicate overall trends of the asset.
Finally, there is market capitalisation aka market cap. This is the total dollar market value of a company’s outstanding shares of stock, which for a cryptocurrency would be the total dollar market value of its circulating coins or tokens. Market cap is derived by multiplying the total number of a company’s outstanding shares with the current market price of one share. It gives traders an indication of the overall value of a company.
Understanding the market you trade in is going to set you apart from the rest of the traders. Charts and trends can be hiding in plain sight. It is up to the best traders to make sense of these indicators.
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