Hey, and welcome back to another instalment of the Luno trading series. It’s been a good run so far, and the last episode, we looked at the difference between technical and fundamental analysis. If you haven’t seen it yet, make sure you catch up just over here. Okay. So this time we’re going to be covering the different types of charts. A key aspect if you’re going to be making your trades.
Today, we’ll look at line charts, candlestick charts, and of course, depth charts. We’ll also take a look at what’s going on on the charts themselves, trend lines and the basics behind the support and resistance line. Let’s start by taking a look at the features we can use with the trading view. This has recently been added to the Luno exchange and is a really powerful tool.
Here you’ll see there are a lot of different tools that we can use. You can select your timeframe this week, like this, and switch between different charts by clicking on the chart icon and toggling here. You can also draw some basic trend lines, like so.
Okay, we’ve got our chart. Ready? Let’s jump into the detail. First up, let’s go over the most familiar crypto chart, a line chart. These show us historical price points over time. Whether we want to see minutes, days, weeks, or years, the chart will show daily closing prices during that time period.
The timeframe that you look up will depend on the trading strategy that you’re using, as we talked about in episode two. Linear line charts divide the price scale into equal pieces, while the log chart scales the price according to percentage change. You can easily switch between the linear or log scale by clicking on the log at the bottom.
Below the line chart, you have the volume in bars. The main thing to note is that the linear charts show the speed of price changes best, while log charts make it easier to identify trends. Now, let’s move on to something a bit more interesting.
Candlestick charts. Traders tend to use candlestick charts, as they’re easier to see price patterns in a single glance with lots more info. One of the first things that we need to note is that the candlestick charts are green and red candles. These candles have lots of different information, and the green candles show that the asset, like Bitcoin, closed at a higher price than it opened in that certain timeframe. The red candles, however, show the opposite.
The price closed lower than it opened. Candles measure a set amount of time. And this can be anywhere, from seconds to years. There are four parts to each candle on the candlestick chart. Each candle has a body and two wicks, the upper and lower wick.
The top of the body marks the first recorded trading price at the open, and the upper wick or the top is the high or highest recording trading price in that session. Then there’s the bottom of the body, that shows us the lowest recorded trading price. And finally, the lower wick, at the bottom, that shows the last recorded price at the close.
Generally, the longer the body of the candlestick, the more intense buying and selling were during that timeframe. If the wicks are short, it means that the high or the low happened close to the opening and or closing price. And of course, the opposite is true of long wicks.
The candles give us an idea of how volatile the market is. If we’re looking at the candles from a TA perspective, the more volatile the market is, the higher the chance for gains or losses. We’ll come back to candlesticks charts later to show you how to draw some trendlines.
But first, let’s quickly cover depth charts to get the depth chart, just toggle from trading view at the top left-hand corner, The depth chart shows us all the market makers who want to buy or sell an asset, and the price they want to pay. Left to right, we see the price.
The height of the graph shows us the amount of the asset. The lines show how much of the asset is needed to be bought or sold to reach a given price point, the green on the left is the open buy orders, and the red on the right is the open sell orders.
The open buy orders are below the current price, While the open sell orders are above the current price. At the centre, where the two lines meet, is the last traded price of that moment. The depth chart shows us to supply and demand at a glance, and how deep the market is. Traders look for signals in the curves and the movements of these lines. Another kind of line that we want to talk about are trend lines.
Trend lines are diagonal lines drawn on charts that connect specific data points. They make it easier to see price movements and market trends. It’s generally agreed that trend lines should connect three or more points together to be considered valid.
The main thing to know about trend lines is where the points you connect are. In an uptrend, you draw the lines using the lowest values in the line chart. So you go from below the candle. And in a downtrend, you use the highest values, so you go from the top. Based on these highs and lows, trend lines indicate supply and demand in the market. A valid trend line must be tested several times to show it’s not just a coincidence or a price fluctuation.
When we extend trend lines into the future using moving averages, they act as a line of resistance, or support, depending on whether they are at the bottom of the top. Support is when a downtrend is expected to pause because there’s a concentration of demand. This is the trend line that we draw at the bottom. Resistance is when an uptrend is expected to pause temporarily because of the concentration of supply.
This is the line we draw at the top. There’s a lot more to be said on trend lines, but this gives you an idea of how they can be used. Okay! And that’s a wrap for this episode. The best way to become a pro at trading is to constantly try different strategies and practice on the Luno exchange, using trading view and getting your eye in on the charts.
Don’t forget to smash that subscribe button so we can keep bringing you that crypto knowledge. But until then, and as always, #ToTheMoon.