Bitcoin Technical Analysis: How to Read Bitcoin Charts and Identify Trends

20 MIN

Learn Bitcoin technical analysis to determine Bitcoin’s price movements. This article explores key indicators and strategies that you can use to read Bitcoin charts and identify trends.

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Cryptocurrencies, especially Bitcoin, have gained significant attention over the last few years. Since its inception in 2009, Bitcoin, being the first and largest cryptocurrency, has become popular among investors and traders. Its decentralized nature and limited supply make it a potential alternative to traditional fiat currencies.

However, the value of Bitcoin is highly volatile, and its price can fluctuate rapidly. Therefore, anyone interested in investing or trading in Bitcoin should possess the ability to read Bitcoin charts and identify trends. Trading experts can take advantage of price swings by analyzing charts and recognizing trends that can assist them in determining when to buy or sell Bitcoin.

This article will explore Bitcoin technical analysis, including the different chart types that show Bitcoin data, how to identify trends, and the risks of Bitcoin technical analysis amongst others.

Types of Bitcoin Charts

Bitcoin price movements over time are shown visually in Bitcoin charts. There are various types of Bitcoin charts, each with special advantages and features. Anyone wishing to evaluate the movement of Bitcoin price and make wise trading decisions needs to be familiar with the various Bitcoin charts. Some of them include:

Line Chart

This is the simplest form of Bitcoin chart. It displays the Bitcoin closing price across a specified time frame, such as a day, week, or month. On the chart, a dot or marker is used to symbolize each data point, and lines are used to connect the markers. Line charts help spot broad patterns since they give a fast summary of Bitcoin's price changes over time.

They don't offer much detail, though, so they might not be used for more detailed analysis.

Candlestick Chart

This is the most popular type of Bitcoin chart. Each candlestick on the chart corresponds to a specific period. The candlestick shows the highs and lows that were experienced during that period, as well as the starting and closing prices.

Depending on whether the price rose or fell during that period, the candlestick's body is either red or green. The candlestick's wicks, or shadows, represent the highest and lowest prices that were experienced during that time.

Candlestick charts are helpful for spotting trends, patterns, and significant levels of support and resistance since they give lots of information regarding Bitcoin's price changes.

Area Chart

Unlike line charts, area charts use color to visually show the price range in the space between the line and the x-axis. Area charts are often used with other types of charts because they do a good job of showing how Bitcoin's price has changed over time.

Point and Figure Chart

Unlike other chart types, point and figure charts only show changes in the price of Bitcoin over time. The chart is made up of Xs and Os, where Xs represent price changes that are upward and Os represent price changes that are downward. Point and figure charts can be used to forecast future price movements and help locate important support and resistance levels.

Introduction to Timeframes

When reading and analyzing Bitcoin charts, the timeframe is one of the most important things to consider. The timeframe, which can be anything from a minute to several years, refers to the duration of each candlestick or bar on the chart.

Different timeframes have different amounts of information, and each one could be useful for different tasks. Shorter timeframes, like one minute, five minutes, or fifteen minutes, give more detailed information about short-term price changes. These charts help traders who use short-term strategies, like scalping or day trading, to make money from small price movements or short-lived market inefficiencies.

On the other hand, higher timeframes, such as daily, weekly, or monthly charts, offer a more comprehensive view of the market's overall trend. These timeframes are helpful for investors who are interested in long-term trends and wish to base their investment choices on the general state of the market.

For instance, a daily chart may show that, despite occasional short-term price changes, the price of Bitcoin has been in a long-term uptrend over the past year. Given that the overall trend is favorable, this information might be helpful for investors who are interested in holding Bitcoin for a long time and who want to feel more secure about their investment choices.

It's important to remember that the way price changes and patterns are interpreted can change depending on the timeframe considered for the analysis. An hourly chart can indicate that the price of Bitcoin is rising, but a daily chart might indicate that the price is falling. As a result of this, traders and analysts often use different timeframes to get a full picture of market trends and price changes.

Analysts and traders often use other indicators and tools in addition to different timeframes and chart analyses to make a well-rounded trading strategy. Some of these indicators include moving averages, trend lines, Relative Strength Index (RSI), and Moving Average Convergence Divergence (MACD).

Analyzing Bitcoin Price Movements

Anyone who wants to invest in Bitcoin or trade it on a cryptocurrency exchange needs to be able to analyze price changes. You can spot trends, understand the market sentiment, and make better trading decisions by tracking the changes in the price of bitcoin over time.

You can study Bitcoin price changes using several tools and methods. Here are some of the most important ones:

Reading Candlestick Patterns

A common method for analyzing Bitcoin price changes is candlestick charts. These charts, which are composed of individual candlesticks, display Bitcoin price changes over a particular period (such as a day, a week, or a month). Each candlestick depicts the price range for that period, with the body representing the opening and closing values and the upper and lower wicks displaying the highest and lowest prices.

Candlestick patterns can reveal important market sentiment clues. For instance, a long green candlestick with a small upper wick denotes buyer dominance, whereas a long red candlestick with a little lower wick denotes seller dominance.

Doji (when the starting and closing prices are the same), harami (when a smaller candlestick is enclosed within a larger one), and hammer are additional common patterns (when the candlestick has a small body and a long lower wick).

Another useful tool for analyzing Bitcoin price changes is the moving average. These lines display the average Bitcoin price over a given time frame, such as 50 or 200 days. You can tell whether Bitcoin is experiencing an upswing or a downturn by observing the moving average's trend.

For instance, a bullish signal is shown when the 50-day moving is above the 200-day moving average and a bearish signal is indicated when the 50-day moving average is below the 200-day moving average.

Understanding Bitcoin Price Indicators

You can look at how the price of Bitcoin changes with the help of several technical indicators. These indicators use complicated mathematical calculations to analyze price data and show market patterns and sentiment.

For example, the Moving Average Convergence Divergence (MACD) shows how two moving averages relate to each other and can suggest whether to buy or sell. The Relative Strength Index (RSI) looks at whether Bitcoin is overbought or oversold. Bollinger Bands, which can also provide alerts for trading ranges, measure the volatility of Bitcoin values.

Examining Market Sentiment

The way traders and investors feel about Bitcoin, in general, is called the "market sentiment." You may gauge what the market thinks about Bitcoin by looking at news stories, social media posts, and other informational sources.

For instance, if there is a lot of good news regarding Bitcoin, like a big corporation saying it will accept Bitcoin payments, this could cause prices to increase. On the other hand, unfavorable news (such as a government crackdown on Bitcoin) can cause the value of Bitcoin to fall.

Identifying Key Support and Resistance Levels

Prices at which there is a lot of buying or selling pressure are considered the support and resistance levels. These levels may be found on a Bitcoin chart, which can help you make more intelligent trading choices.

For instance, it might be a good idea to sell Bitcoin if the prices are getting close to a significant resistance level (where sellers are expected to show up). On the other hand, if Bitcoin is getting close to a key support level (where buyers are likely to show up), that might be a good moment to buy.

Using Bitcoin Charts to Make Informed Decisions

It’s important to understand how to use Bitcoin charts to make informed decisions. Given how volatile Bitcoin is, it's crucial to have a solid grasp of price fluctuations, identify trends, and examine patterns to make informed judgments about when to buy or sell.

The ability to spot market patterns is one of the key advantages of using Bitcoin charts. Trends can help investors predict how the price of Bitcoin will change in the future, so they can make better decisions. The two types of trends are uptrend and downtrend.

Downtrends occur when the price of Bitcoin keeps falling, and uptrends occur when it keeps rising. It's important to look for places on a chart where the price has retraced from support or resistance levels, signifying an uptrend or downturn, respectively.

Developing a Trading Strategy Based on Chart Analysis

Investors can create a trading strategy based on chart analysis by using Bitcoin charts. An investor uses a set of guidelines known as a trading strategy to place trades. Investors can discover probable entry and exit points, establish stop-loss levels, and calculate their risk-to-reward ratio by analyzing chart patterns.

A moving average convergence and divergence (MACD) indicator, for instance, can be used to spot prospective buying and selling opportunities. The MACD is a momentum trend-follower that depicts the connection between two moving averages.

A chance to buy may occur when the MACD crosses above the signal line, which is seen as a bullish indicator. On the other hand, if the MACD crosses below the signal line, it's a bearish indicator and could be a good time to sell.

Risks and Limitations of Using Bitcoin Charts for Trading Decisions

It's important to remember that using Bitcoin charts to decide when to place trades is not always a good idea. Investors should realize the dangers and risks associated with chart analysis before engaging in any trading.

The fact that Bitcoin charts only offer historical data is one of the risks of using them. Investors should be cautious when making trading decisions based on charts because past performance doesn't guarantee future performance.

Also, Bitcoin is very unpredictable, and its price can be affected by several factors, such as market sentiment, changes in regulations, and international events. As a result, when making trading decisions, investors need to consider these factors in addition to chart analysis.

How to Use 3Commas for Bitcoin Technical Analysis

How can 3Commas improve your Bitcoin technical analysis? Here are the steps to follow to analyze Bitcoin charts using 3Commas:

Set Up a 3Commas Account

To set up a 3Commas account, go to the website and sign up for a free trial account. You can connect your API keys to the exchanges you use for trading once you have an account. API keys are special codes that give 3Commas access to your exchange trade data. You need to adhere to the directions offered by 3Commas for each exchange to link your API keys.

You must sign into your exchange account and create a new API key to connect your API keys to an exchange. You will then copy the API key and secret key and paste them into the 3Commas API settings for that exchange. This process could be different depending on the exchange you use, so ensure you read 3Commas's detailed instructions carefully.

Configure Trading Bots on 3Commas

You can start setting up your trading bots on 3Commas once you've connected your API credentials to your exchanges. To get started, click "Create bot" on the bots section of your 3Commas dashboard. Then, you'll need to decide the exchange you want to use, your preferred trading pair, and the type of bot you want to use.

There are different types of bots available, including short bots, composite bots, and simple bots.

Simple bots, which are based on a single technical analysis indicator, are the simplest to set up. Composite bots are more sophisticated and can make trade decisions using various technical analysis indicators. Short bots are made for short selling and are used to profit when the market goes down.

Customize Technical Analysis Settings

You need to customize your technical analysis settings after selecting your bot type. This involves defining the parameters for each indicator as well as configuring your bot to use the technical analysis indicators that you find most useful.

If you want to use your bot to find market patterns, you must tell it to use an indicator, like the 50-day moving average. Also, you must specify the moving average's specifications, including its period and the type of moving average.

Also, if you want to use the RSI indicator to find overbought or oversold market conditions, you must set up your bot to use it and specify the parameters for the indicator, such as the period and the overbought and oversold levels.

Bollinger bands can also be used to determine stop-loss and profit targets for your trades. Bollinger Bands are a volatility indicator that can assist you in establishing reasonable profit objectives and stop-loss levels based on the market's volatility.

Monitor and Adjust Your Trading Bot

After you've configured your trading bot on 3Commas, it's important to keep an eye on how it's performing and make any necessary modifications. You should routinely analyze the transactions made by your trading bot and make any required adjustments to your technical analysis settings. to maximize your trading strategy.

For instance, you might need to change your technical analysis settings to better represent the state of the market if you discover that your bot is making too many trades or is not doing as well as you'd like. On the other hand, if your bot is performing very well, you may consider using more technical analysis indicators to further refine your trading strategy.

Bitcoin Technical Analysis FAQ

  • Technical analysis involves analyzing charts and forecasting price movements in the future using historical price patterns and technical indicators. Every market (even digital currencies like Bitcoin) uses technical analysis.

  • The moving average convergence/divergence (MACD) is a popular indicator for trading cryptocurrencies. This is because it is simple to use and can generate reliable crypto trading signals.

  • It can take about 6 months (with daily practice of 1 to 2 hours) to learn crypto technical analysis. however, you will need to dedicate more time to become a pro.

  • The M trading pattern is formed when there is a series of upward ticks, followed by a downward tick, and then another series of upward ticks. On the chart, this creates an "M" shape. This suggests a downward market trend. The M pattern is also known as the double-top pattern.


Anyone wishing to invest in or trade Bitcoin must be adept at Bitcoin technical analysis (i.e., they must be able to read Bitcoin charts and spot patterns). You can learn important things about the market and make good decisions if you understand the basics of Bitcoin charts, can spot trend lines, watch how prices move, and use advanced charting techniques.

It's important to keep in mind that using Bitcoin charts to decide which trades to make has its risks, so it should be done with care. When placing trades, you need to consider several factors, like fundamental analysis, news events, and market sentiment.

In 2023, applying technical analysis to Bitcoin charts remains a pivotal method for identifying prevailing crypto trends, enabling traders to make informed decisions based on price patterns, market indicators, and historical data. By meticulously analyzing chart patterns, volume, momentum, and other relevant indicators, traders can discern potential future movements, capitalize on emerging opportunities, and mitigate risks in the constantly evolving cryptocurrency landscape, thereby optimizing their strategic positioning in the fast-paced and intricate world of digital assets.