The recent rally in the prices of bitcoin and other cryptocurrencies caused by FOMO (fear of missing out) has spawned a new breed of speculators. While many have welcomed the advent of crypto-currencies, there has also been a sharp rise in the number of groups and individuals who want to short the digital currencies. One popular method is to use charts to predict future price movements. A Logarithmic Chart is a tool that I have found to be very useful for identifying potential short-term money-losing situations in cryptocurrencies such as bitcoin. In this article I will walk you through how to read and interpret a Logarithmic Chart and how to use it to your advantage.
Understand The Differences Between The Various Crypto Charts
Before we begin, it’s important to point out that the various charts used to track the prices of cryptocurrencies are not necessarily created equal. Just like with traditional financial charts, there is a lot of information that you need to keep in mind when interpreting the data. For example, bear in mind that:
- Bitstamp’s price chart uses the USD as its base currency, which can cause sharp moves in prices to appear less dramatic than they would in other currencies such as the GBP, JPY, or KRW
- CEX’s price chart shows the market capitalization of all cryptocurrencies, which can create some unusual trends when viewed over time
- Coinbase’s price chart only shows changes in USD value, making it ideal for viewing long-term market movements
The Basics Of A Cryptographic Chart
No matter which cryptocurrency chart you choose to analyze, the general behavior of a digital asset is going to look pretty much the same. Cryptographic charts behave just like any other type of chart, but when you look closer, you will see some significant differences. For example, if you compare the behavior of a bitcoin (BTC) chart with that of a ripple (XRP) chart, you will see that bitcoin tends to trend up and down in value more than most other digital currencies. It’s also worth noting that many cryptocurrency charts have a time stamp showing when the analyzed data was collected.
Additionally, just like with any other type of financial chart, you will sometimes see extreme price movements in a Cryptographic Chart that are not necessarily indicative of the currency’s future performance. It is always a good idea to compare recent historical data with whatever data the researcher or analyst is using when generating the chart. Doing so can help you understand whether the data is reliable and whether the forecasted prices are likely to occur.
Shape Of A Logarithmic Chart
Just like any other type of chart, the shape of a Linear or Logarithmic Chart can vary. However, there is one significant difference between a Logarithmic Chart and a Linear Chart: The X-axis in a Linear Chart always ranges from 100 to 0, while the X-axis in a Logarithmic Chart usually ranges from 0 to 1. In other words, a Logarithmic Chart is usually not displayed with values that are relative to a fixed scale, like a Linear Chart. Instead, a Logarithmic Chart is usually constructed with all the data points positioned on a common scale so that they can be compared to one another. In order to compare the data effectively, you will need to know what unit of measurement the data is expressed in. For example, it is usually expressed in USD, but if you want to compare it to the value of the Canadian Dollar, you will need to know what conversion rate you are using. In theory, this extra step could be avoided if the data was originally collected in a common currency, but in practice, many cryptocurrency charts are already on a standardized scale, so the conversion rates are usually not an issue.
How To Read A Cryptographic Chart
Just like any other type of financial chart, you will need to know a few things before you can effectively interpret a cryptoco chart. The first step is to familiarize yourself with the general behavior of the asset you are looking at. For example, will the price of bitcoin usually rise or fall in response to certain news events? Are the price patterns of different cryptocurrencies similar to one another or do they behave differently? Having some familiarity with the answers to these questions will greatly enhance your understanding of the chart and allow you to see the trends much more clearly.
Once you have a good understanding of the general trends, it is time to move on to the next step which is analyzing the specific details of the recent price movements. Simply follow the same rules you would follow for any other type of financial chart and you will be able to understand everything there is to know about a crypto-asset’s price movements. Keep in mind that the data can be extremely volatile, so always exercise caution before making any significant investments based on what you learn from a cryptoco chart. Never, ever put all your eggs in one basket and it does not matter whether it’s a basket of cryptocurrencies or a basket of stocks, doing so can only lead to disaster. It’s also a good idea to keep in mind that the information presented in the charts does not necessarily reflect the direct views of any of the analysts or researchers who created them. This is especially important in the case of short-term charts where there is often a significant delay between the time the data was collected and the time it is published. An example of this would be when looking at Bitstamp’s chart for BTC. The data was collected roughly two weeks ago, but it was not published until this week (approximately).
How To Use A Cryptographic Chart
Once you have learned how to read a Cryptographic Chart and how to interpret its details effectively, its time to use what you have learned to your advantage. It is important to keep in mind that just because a trend is identified in a chart does not mean it is guaranteed to occur in the future. Just like any other kind of financial chart, the data can be used to identify potential trends that can then be followed up with appropriate investment strategies or simply observed from a short-term trading perspective.
If you have followed all the steps correctly, then you should already have a pretty good idea of what type of asset you are looking at and how to read the details of recent price movements effectively. However, just because you know how to read a Cryptographic Chart, that does not mean you understand everything there is to know about it. In order to make the most effective use of this information, it is vital to remain continually updated with the ever-changing world of cryptocurrencies. Never hesitate to reach out to experts for help when you need it. Additionally, many professionals are often happy to share their wealth of knowledge with those who show genuine interest. Finally, don’t forget about the tools that can be used to greatly enhance a user’s understanding of the trends. Many cryptocurrencies have built-in calculators that can be used to quickly perform common conversions or figure-checks. Additionally, there are many websites and forums devoted to just analyzing and tracking cryptocurrencies so staying informed is never a problem.
In conclusion, keeping all this in mind, it is once again time to review the basics of a Logarithmic Chart. Like any other type of chart, the basics of a Logarithmic Chart are simple enough and can be summarized as follows: