How to analyze virtual currency charts? The complete guide from beginner to expert in technical analysis

A professional trader needs to master two core skills: fundamental analysis and technical analysis. Fundamental analysis helps you decide what to buy (choose BTC, ETH, or XRP), while technical analysis addresses when to buy and when to sell. Both are indispensable. So, how to analyze the market for virtual currencies? How to use technical analysis to find the best entry and exit points? This article will provide you with a comprehensive answer.

The Underlying Logic of Technical Analysis

Technical analysis is a method of studying an asset’s historical price movements to predict its future price changes. It is not limited to cryptocurrencies and is widely used in traditional financial markets such as stocks, forex, and commodities.

The reason why technical analysis can work across different asset types is that it focuses solely on the patterns of price itself, without involving the specific attributes of the asset. Therefore, if you already understand technical analysis and market viewing methods in traditional markets, these skills can be directly transferred to the cryptocurrency market. The principles of analyzing virtual currency charts are fundamentally similar to those in traditional finance.

K-line: The Basic Unit of Cryptocurrency Market Analysis

To analyze virtual currency markets, first understand K-lines (also called candlesticks or yin-yang lines). K-lines are the smallest units in technical analysis, and all technical indicators are built upon them.

A single K-line contains four key price data points:

• High Price: The highest trading price within a specific time period
• Low Price: The lowest trading price within that period
• Open Price: The first traded price in the period
• Close Price: The last traded price in the period

Based on the relationship between open and close prices, K-lines are divided into two types:

Bullish (Yang) Line (usually red): Open price is lower than close price, indicating the price rose during this period, with stronger buying momentum.

Bearish (Yin) Line (usually green): Open price is higher than close price, indicating the price fell during this period, with stronger selling momentum.

Standard K-lines also include upper shadows (above the body) and lower shadows (below the body). In reality, K-line shapes vary greatly, with different lengths of shadows and bodies, reflecting different market volatility during that period.

Six Key Steps to Analyzing Cryptocurrency Markets

Step 1: Choose the appropriate time frame

K-line charts range from 1-minute to daily, weekly, or monthly charts. Select based on your trading style: short-term traders may look at 1-hour or 5-minute charts, while medium- and long-term traders prefer daily or weekly charts.

Step 2: Recognize single K-line patterns

Learn to identify signals formed by single candlesticks, such as doji, engulfing patterns, etc. This is the foundation of market viewing.

Step 3: Analyze multi-K-line combination patterns

Patterns formed by multiple candlesticks, such as head and shoulders, double bottoms, flags, etc., can more accurately reflect market psychology changes.

Step 4: Determine market trend direction

Observe the arrangement of K-lines to judge whether the market is in an uptrend, downtrend, or sideways consolidation.

Step 5: Identify support and resistance levels

Use historical highs and lows, RSI, and other indicators to identify potential support levels (where prices may rise) and resistance levels (where prices may fall).

Step 6: Combine volume and other indicators

Changes in trading volume can strengthen or weaken K-line signals. Use additional technical indicators like MACD, MA, Bollinger Bands for confirmation.

Detailed Explanation of Five Common Technical Indicators

Moving Average (MA): Identifies trend direction

Moving averages are calculated over a certain period to identify trend reversals, support, and resistance levels.

When the price stays above the MA and remains close, the MA acts as support, signaling a buy. When the price is below the MA, it acts as resistance, signaling a sell.

There are two types: Simple Moving Average (SMA) and Exponential Moving Average (EMA). EMA gives more weight to recent prices, making it more sensitive to new trends and faster to react. Common periods are 7, 30, and 120 days.

Bollinger Bands: Assess overbought and oversold conditions

Bollinger Bands consist of an upper band, middle band (usually a moving average), and lower band, used to measure whether the price is at an extreme.

When prices approach the upper band, the market is considered overbought and may decline, signaling a sell. When approaching the lower band, the market is oversold and may rebound, signaling a buy. Near the middle band, prices may continue the previous trend.

Relative Strength Index (RSI): Measures price momentum

RSI is calculated based on the average gains and losses over a period (usually 14 days), with values ranging from 0 to 100.

RSI above 70 indicates overbought conditions, possibly leading to selling pressure. RSI below 30 indicates oversold conditions, possibly leading to buying. Divergence between RSI and price movement can also signal trend reversals.

KDJ: Three-line confirmation mechanism

KDJ includes K, D, and J lines, with values from 0 to 100.

When K crosses above 80 and then drops below D, it indicates overbought and a potential decline. When K crosses below 20 and then rises above D, it indicates oversold and a potential rise. The J line, derived from K and D, mainly serves as a confirmation tool.

MACD: Detect trend reversals

MACD consists of DIF, DEA, and histogram, mainly used to identify trend changes.

Golden cross: DIF crossing above DEA indicates an upward trend, signaling a buy. Death cross: DIF crossing below DEA indicates a downward trend, signaling a sell. The histogram’s positive or negative values reflect trend strength. Divergence between MACD and price may signal an impending trend reversal.

Essential Trading Data to Watch

Besides technical indicators, pay attention to these data points:

Trading Volume (Volume): High volume with rising prices indicates a strong market (bullish), while high volume with falling prices indicates weakness (bearish).

Capital Flow: Observe buy and sell orders in the order book. Large buy orders below suggest strong buying interest; large sell orders above indicate selling pressure.

Fear/Greed Index: Ranges from 0-100, reflecting market sentiment. 0-50 indicates fear, 50-100 indicates greed. Extreme sentiment levels often present trading opportunities.

Other important data include liquidation volume, open interest, long-short ratio, funding rates, on-chain transfers, whale holdings, etc.

Practical Tools and Methods for Cryptocurrency Market Analysis

Tool Selection: TradingView is the industry-standard charting platform, offering comprehensive candlestick charts, drawing tools, and over 100 technical indicators. CoinGlass provides specialized crypto data, including positions, funding rates, and more.

Practical Process:

The first stage is learning and observation—studying historical data patterns and testing different indicators and parameters. The second stage involves small-scale practice—using real accounts to verify your analysis and accumulate experience. The third stage is summarizing and optimizing—adjusting strategies based on actual trading results.

This process requires repeated iteration and long-term persistence. Trading is a continuous journey of self-improvement, aiming for higher accuracy rather than absolute correctness.

Important Tips

While technical analysis is powerful, it has limitations. During major positive or negative news shocks, technical signals may fail. Therefore, avoid relying solely on one indicator; instead, use multiple indicators for confirmation. Also, stay attentive to market news and fundamental changes to better seize trading opportunities.