[ Effective Trading Strategy using Line Charts ]-Steemit Crypto Academy | S6W1 | Homework Post for @dilchamo
My name is Imantha and I'm from Sri Lanka. This is my second time participating in the steemit crypto academy homework series. I hope to learn lots of new things about crypto and trading from these homework series. Thank you everyone who takes their time to make this course series happen. I would like to thank @dilchamo for giving us this homework.
What are Line charts and their uses
Line chart is a graphical 2D data representation method of an asset which connects the opening price and the closing price. Assets open, high and low prices are extra information for us. They can be identified as noise because of the extra information. In line charts since we only represent an asset's closing price, it’s very easy to understand.
The horizontal axis of a line chart represents the time frame which we are referring to. The vertical axis is showing us the closing price of a crypto asset. So it visualizes the prices of an asset very clearly. Line charts are very suitable to understand trends. When traders use very detailed charts, it’s sometimes very difficult to understand what's going on and because of that they lose their chances to gain profits.
Identify Support and Resistance levels using Line Charts
To understand about the price movement of an asset, the very first thing we need to understand is the support and resistance levels. So it can be identified as the foundation of technical analysis.
When the price of an asset is decreasing, where the buying power becomes strong enough to stop the price decreasing any further can be identified as a support level. So that means the price of a crypto asset trends to increase when it meets a support level.
When the price of an asset is increasing, where the selling power becomes strong enough to stop the price increasing any further can be identified as a resistance level. So that means the price of a crypto asset trends to decrease when it meets a resistance level.
Difference between line charts and Candlestick charts
As we already know the line charts are developed only using closing price of an asset which means lots of noise is removed which are available in candlestick charts. Since it contains less information, line graphs are suitable for long time frame analysis. But when we do short term trading, the extra information can be really important. So in those situations, using more complicated charts with the combination of line charts are more suitable.
Other Suitable indicators that can be used with Line charts
We all understand that the moving average is a really good indicator to make good trading decisions. Simple moving average and also the exponential moving average can also be used. When we use candlestick charts with moving averages it is quite confusing sometimes. So it’s recommended to use it with line charts. Moving averages provide resistance in bearish trends and support during bullish trends. So it’s easy to understand what's going on when the line chart meets the moving average. It becomes easier to take some important trading decisions.
Bullish and Bearish Trading opportunities using Line charts
In cryptocurrency trading it’s really important to identify the price trend. The profit or loss totally depends on the correct identification of this. Using ascending and descending triangles, the bullish and the bearish trends can be easily identified by using line charts.
By using the continuous high points of the line chart we can create an ascending triangle. The triangle gives us the bullish signal to enter a trade. After identifying the triangle there can be a price up. That means a long position in leverage trading.
By using the continuous low points of the line chart we can create a descending triangle. The triangle gives us the bearish signal to enter a trade. After identifying the triangle there can be a price down. That means a short position in leverage trading.
Advantages and Disadvantages of Line charts
Since line charts are very basic, it is really easy to understand the situation for beginners. Line charts make it easy to understand more complicated graphs in the future when practicing in early days of trading. Since some advanced traders need more price information such as opening, high and low, line charts do nor serve them very well. But those can be used with a combination of advanced charts.
- Simple, easy to understand and efficient.
- Shows very small changes that are very difficult to show in other charts.
- We can see changes over different time periods such as hourly, daily, monthly.
- When plotting more lines, it can be more difficult to read.
- Many different data types can not be traced by line charts.
- Only best for representing data with numerical values with total figures.
Conclusion
Line charts are mostly used by beginner traders to identify the price movement of a crypto asset. The simplicity of line charts makes it very easy to identify the price movement of an asset. Since the closing price is very important for most of the traders, the line charts provide a better solution for it. The bullish and bearish trends can be easily identified using the ascending and descending triangles. Using line charts with moving averages makes it easier to identify a price movement. Understanding the advantages and disadvantages of line charts makes our trading process more easy and convenient.