Bitcoin is the world’s most valuable digital asset. Nowadays, everyone is investing or trading in bitcoins and other profitable cryptocurrencies. To trade or invest in bitcoins, you must know about reading bitcoin charts that will help you to make deals at a profit. Since cryptocurrencies are highly volatile, you must be accurate with your readings to make daily profits.

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In this article, you will get insights into how to read bitcoin charts and predict market trends.

Dow theory of reading Bitcoin charts

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To read Bitcoin charts, you must have insights on market trends and a better understanding of technical aspects. Dow theory helps you to understand the market trends that you can use to read Bitcoin charts.

Dow theory is based on some basic ideas which state the following:

  • All information related to past, present and upcoming must be united to set the current price of Bitcoins.
  • All factors related to past, present, and future demands and the latest guidelines that might influence the crypto market must be taken into consideration.
  • Changes in the value of Bitcoins move mostly based on market trends for both the short and long term.
  • Traders usually concentrate on the value of bitcoins instead of evaluating every single factor that causes price changes.

Principles of Doe Theory to anticipate market trends

1. Types of movement in the market

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Every market has a primary movement that can last until a year and might continue for a few years. There are three types of movement in the market. This movement can be either a bullish or bearish movement.

A bullish movement is an upward movement where the traders try to buy Bitcoins so their value can rise and they can make more profits by selling them at higher profits. On the contrary, a bearish movement is a download trend where the traders sell their Bitcoins so they can buy again at a lower price.

The secondary movement is a slight change in prices that lasts between 10 days to 3 months. The change is usually between 33% to 66% of the initial value of the primary movement.

Lastly, we have short movements where the change in value is based on market analysis that can last between a few hours to days.

2. Types of phases in a market trend

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As mentioned in the Dow theory, there are three phases in a market trend which include the accumulation phase, absorption phase, and distribution phase. To read Bitcoin price charts accurately, you must be aware of these phases that are going on in the market.

There is always a general perception in the crypto market that most investors and traders follow related to buying and selling Bitcoins and altcoins. In the accumulation phase, there are a few knowledgeable investors who go against market trends and take risks. The reward can be equally profitable or might lead to a financial loss. This doesn’t affect the market much because most people keep themselves safe and follow the trend to avoid making any losses.

In the absorption phase, if these knowledgeable investors make a huge profit, then the entire market shifts and follows their trends, and eventually, it becomes a new market trend. As the trends get popular, these investors have already made huge profits by then from investing in a particular cryptocurrency. This is how you must either set a market trend or follow the market trend. In this phase, the initial speculation begins.

The distribution phase is the last in setting a market trend. After huge speculation, these knowledgeable investors start distributing their cryptocurrencies at a higher price in the market.

3. Every latest information is incorporated in the market

In the market, the latest information is taken into consideration based on which the price of Bitcoins changes. The value of bitcoins is a clear indication of the hopes, fears, and expectations of the investors. This information is based on factors like revenue, earnings, interest rates, product initiatives, etc.

4. The market averages must move in the same direction

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When a similar company or industry is generally linked, then the average in performance of both the companies should head towards the same direction. It’s a clear indication that market trends will change anytime soon if the performance of one company increases and the other decreases. Ensure that the averages must not be opposing each other.

5. A direct relation between price and volume in a market trend

Source: investopedia.com

Volume is a significant factor in determining the value of bitcoin. There must be a direct relationship between price and volume in determining a market trend. If the market trend is upward movement, i.e., bullish movement, then with an increase in price, the volume will increase as well. Similarly, if the market trend is downward movement, i.e., the bearish movement, then with a price decrease, the volume will decrease.

6. Existing market trends must end so new trends can be set

Dow theory states that an existing market remains in trend irrespective of market volatility until new trends are set. Setting up a new market trend is not easy as most people tend to follow the existing trend to avoid any loss.

The Bottom-line

The Dow theory will help you to analyze the market trends based on which you will be able to read the bitcoin chart and predict the upward or downward trend more accurately. While reading the bitcoin chart also focuses on the time frames which is most crucial while trading cryptocurrencies.

You must set a time frame chart that will give you details within that specific period. It differs from 15 minutes, 1 hour, 4 hours, or daily 1-day charts. The time frame chart also depicts your trading style.

You must be able to read the Bitcoin chart accurately, or else you won’t be able to predict future prices, and you might have to incur huge losses. Hence, do your homework properly before you trade in cryptocurrency.