What Is Chartism?

Chartism is a technique for graphic analysis of financial markets. Widely used in cryptocurrency trading, it relies on patterns and technical indicators to provide an essential decision-making tool. Will this digital currency rise or fall? When is the right time to buy or sell? Let’s discover everything there is to know about this analysis method in the crypto market.

Definition of chartism in Bitcoin trading

It is a method of analysis of financial markets based on the visual aspect of charts. Also called graphic analysis, it aims to understand and predict the next price movements.

In Bitcoin trading, it consists then of analyzing a chartist figure formed by the movements of the BTC price, in order to understand its movements, evolution, and perspectives.

This method is based on price and trading volume of the digital currency. It is in opposition to fundamental analysis, which focuses more on the underlying technology, supply and demand, development team, regulations, or competition.

Vocabulary of chartism

To master this approach using chartist figures, it’s necessary to know the associated technical jargon. Here are the main terms used in chartism:

• TA or Technical Analysis: it consists of analyzing the charts of a cryptocurrency and the indicators specific to that asset.
• ATH or All Time High: it represents the highest value ever reached for a cryptocurrency. For example, Bitcoin’s ATH was $69,000 in November 2021.
• BEAR: refers to the bear, which attacks by striking down. Bear thus signifies a bearish sentiment, so Bear Market means bear market or bearish.
• BULL: refers to the bull that lowers its horns before rising. It thus signifies a bullish sentiment, Bull market meaning bull market or bullish.
• DUMP and PUMP: Dump refers to a sudden and significant drop in a digital currency’s price while Pump refers to a significant price increase. The term “Pump and Dump” is used to refer to a fraudulent practice of market manipulation.
• DIP: it refers to a temporary drop in the value of a cryptocurrency within a broader upward trend. “Buy the Dip” means buying a digital currency at a lower price in anticipation of a future increase in its value for profits.
• FOMO or Fear Of Missing Out: this term signifies an impulsive purchase triggered by the fear of missing an opportunity. One should be cautious of it, as it leads to many mistakes.
• Higher High and Higher Low: Higher high indicates that the asset reaches new levels of value and higher low indicates strong resistance to downtrends. These two signals indicate an increase (bullish).
• Lower High and Lower Low: lower high indicates that new highs are reached at lower levels than the previous high and lower low indicates that the new low is lower than the previous one. These two signals indicate a decline (bearish).
• LONG and SHORT: Long indicates an open position to the upside aimed at selling at a higher price. Short indicates an open position to the downside aimed at buying at a lower price.
• MA or EMA: stands for moving average or exponential moving average. It shows the average value of the cryptocurrency over a given period.
• Stop Loss: it is a tool that automatically closes one’s position if a minimum value is reached. It aims to protect capital and limit losses.
• Take Profit: it is a tool that automatically closes one’s position when a target value is reached. It aims to ensure that the limit value is higher than the current market value to generate profits.
• Wall: translates to wall in French, it represents a significant amount of buying or selling intent at a given price.

Chartism: types of chartist figures

These are patterns that appear in price charts allowing traders to identify a trend. There are mainly two types of figures.

Continuation chartist figures

Continuation chartist figures indicate the continuation of the ongoing trend. They include:

• Flags and Pennants are short-term figures that form when there is a strong movement followed by a consolidation phase in the market;
• Triangles generally indicate a consolidation phase in the trend linked to a decrease in market volatility. They can be symmetrical, ascending, or descending;
• Wedges: they are made up of two lines representing support and resistance zones of an oscillating, upward or downward curve. They can be ascending or descending;
• Rectangles: they indicate a price equilibrium between supply and demand over a prolonged period.

Reversal chartist figures

They signify a change in trend:

• The Head and Shoulders (H&S): this chartist figure consists of three peaks and two troughs, with a second peak higher than the two others. It usually indicates a bearish exit;
• The double top: it is a chartist figure in the shape of an “M” that forms after a bullish trend;
• The double bottom: it is the inverted chartist figure of the double top, forming a “W”. It appears when the value bounces twice as it approaches a critical level.

Why practice chartism?

Mastering a chartist figure is a technique that offers many advantages for traders. However, it also has some limitations.

Advantages

As a cryptocurrency trader, particularly in Bitcoin, practicing chartism has the following advantages:

• Identify market trends: indicators help locate entry and exit points in the market;
• Foresee future market movements: technical indicators help determine the best time to invest to achieve profits;
• Avoid decisions based on emotion: technical analysis helps traders base their decisions on indicators rather than emotional impulses;
• Develop an effective trading plan: all the elements obtained through technical analysis help find the most suitable method to profit from a given crypto.

Disadvantages

This approach does have some drawbacks:

• Market volatility: market behavior remains very unpredictable;
• Lack of precision: this method will never be 100% accurate due to market fluctuations.

How to trade with chartist figures?

To trade with chartist figures, you must follow these steps:

1. Go to a cryptocurrency platform;
2. Open the real-time chart of the digital asset, for example, that of Bitcoin (BTC/USD);
3. Identify the general trend of the market;
4. Mark and draw support and resistance lines;
5. Interpret the obtained figures and place your indicators;
6. Find an entry point;
7. Place a buy or sell order.

With around thirty existing figures, it is essential to know the main ones to succeed in your crypto trading.

Useful concepts in Bitcoin chartism

Let’s now take a look at the main concepts related to Bitcoin chartism.

Price Action

Price action (PA) is the analysis of price candles that helps determine market psychology. It involves interpreting Japanese candles, which are graphic representations providing numerous information such as opening and closing prices, highest and lowest prices over a period.

By focusing on value, price action is a true decision-making aid. Thanks to this approach, it is possible to better understand Bitcoin’s evolution based solely on the analysis of its price.

Indicators

There are several types of indicators used in chartism, including moving averages, RSI, and MACD. Indicators are valuable elements for traders as they allow:

• To better understand the value to have a more precise idea of the state of the Bitcoin market;
• To confirm a graphic analysis;
• To create automatic strategies, as their data is easily interpretable.

Timeframes

Timeframes are units of time on which to base analysis based on chartism. The choice of timeframe depends on your strategy:

• Scalping: 1 minute to 5 minutes;
• Intraday: 15 minutes to 1 hour;
• Swing: 4 hours to 1 day;
• Medium term: 1 day to 1 week.

Conclusion

Mastering chartism means making rational decisions in your trading activities. This approach effectively allows you to understand market trends and anticipate future movements. By incorporating technical indicators such as Bollinger Bands, you can refine your analysis and enhance your ability to interpret market data. With top-performing cryptos like Bitcoin and Ethereum, you can make significant gains through good interpretation of chartist figures. However, it is imperative to remain vigilant, as this approach is not entirely reliable due to the volatility of the digital asset market.

La Rédaction C.

L'équipe éditoriale de Cointribune unit ses voix pour s’exprimer sur des thématiques propres aux cryptomonnaies, à l'investissement, au métaverse et aux NFT, tout en s’efforçant de répondre au mieux à vos interrogations.