The Smart Trader's Debrief #6: Beginner's Guide to Trade Charting - Understanding Trends and Basic Chart Analysis.

Before we dive deep into this topic, here's a quick disclaimer: the opinions in this article have been shaped by over a decade of my own personal learning and trading experience. This is not financial advice, and you should always do your own research before investing. Markets are uncertain. Never risk more than you can afford to lose.

If trading was easy, everybody would do it. Newsflash: it's not, and at the best of times, trading can seem overwhelming (when you don't have a plan).

There are many ways to trade. You’ve got manual trading, which involves analyzing charts and news, and then placing trades on a platform. But beyond that, there are many different types of trading—bots, spot trading, options, futures—and within each of these categories, even more tools and strategies, like the Infinity Grid Bot, TWAP Bot, or Futures DCA. It can all feel complicated, but it really boils down to just two fundamentals (in my opinion):

1. Learning to read and analyze charts.

2. Using real money to feel the real emotions (that come with using your own money).

Every tool and strategy in trading is designed to address the emotions you feel when you trade. You'll understand what I mean once you start trading. Here are a couple of scenarios to give you a sense of what I mean:

• Scenario 1: Imagine you’re a trader who doesn’t want to be glued to the screen all day, constantly waiting for the right moment to buy or sell. You want a tool that automatically places trades for you when the conditions are right—like setting an alarm clock for your trades. This is where features like Take Profit, Stop Loss, and limit orders come in, letting you “trade to live,” not “live to trade.”

• Scenario 2: You believe in the long-term value of assets like Bitcoin. You want to keep buying in small amounts during a down or sideways market so that if the price eventually rises, your average investment grows with it. Tools like Grid Bots or recurring buys allow you to do exactly that.

As soon as you start trading and experience these emotions for yourself—whether it’s the stress of watching the market or the excitement of seeing your strategy work—the rest of the tools and strategies will start to make sense. Suddenly, trading doesn’t seem as complex as it once did. You realize it’s all about finding the right tools to manage your emotions and maximize your approach.

The Glossary Survival List (before we start)

Here, you'll find explanations for key terms mentioned throughout the article.

1. Support Zone: A price level where an asset tends to stop falling and might bounce back up, like a "floor" for the price.

2. Resistance Zone: A price level where an asset often stops rising and may fall, acting like a "ceiling" for the price.

3. Entry Point: The price level where you decide to start a trade, either buying or selling.

4. Exit Point: The price level where you decide to close a trade and take your profit or limit losses.

5. Timeframe: The specific period you’re looking at on a price chart, such as 1 hour, 1 day, or 1 week.

6. Candles: Chart symbols that show price changes over time, each “candle” represents the price's open, close, high, and low for a specific timeframe.

7. Higher Highs: When the price of an asset reaches a new peak, and the next peak is even higher than the previous one. This usually signals an upward trend.

8. Higher Lows: When the price drops, but the lowest point is still higher than the previous low. This suggests that the market is still moving upwards.

9. Lower Highs: When the price rises, but the new peak is lower than the previous one. This can indicate a downward trend starting.

10. Lower Lows: When the price falls, and the new low is even lower than the last one. This shows that the market is continuing in a downward trend.

11. Signal: A sign or indicator suggesting a good time to enter or exit a trade, often based on chart patterns or market data.

12. Sideways: When an asset’s price isn’t moving up or down much, staying in a narrow range.

13. Long: Buying an asset expecting its price to go up, so you can sell it later at a higher price.

14. Short: Selling an asset expecting its price to go down, so you can buy it back later at a lower price.

15. Breakout: When the price moves outside a support or resistance zone, often signaling a strong upward or downward movement.

16. Price Movement: Changes in the price of a tokenised asset over time, moving up, down, or sideways.

17. Trading Bots: Automated software that places trades for you based on set rules or strategies.

18. Copy Trading: A feature that allows you to automatically copy the trades of experienced traders, following their strategies.

I'd also like to demystify the concept of Candlesticks to better help beginners in understanding the charts and what these candles mean.The rectangular-shaped symbols you see on the chart are known as candlesticks.

1. Candlestick: A candlestick is a visual representation of price movement for an asset over a specific time period (like one hour or one day). It helps traders quickly see how the price has changed—whether it went up or down during that period.

   

2. Candlestick Body: The body of the candlestick shows the opening and closing prices of the asset during the time period. A filled or colored body means the price went down (closed lower), while an empty or hollow body means the price went up (closed higher).

   

3. Candlestick Wick: The wick (also called a shadow) is the thin line above or below the body of the candlestick. It shows the highest and lowest prices reached during the time period. The top wick indicates the highest price attained during the selected timeframe, and the bottom wick indicates the lowest price price attained during the selected timeframe.

   

Now, let's master the charts. It's half the battle won.

I'll open up the world of charting to you the same way it was for me - the Top Down Analysis method.

Top-Down Analysis in simple terms, involves starting with the big picture by looking at larger timeframes, like weekly or monthly charts, to get a sense of the overall market direction—whether it’s trending up or down.

Once you know the market's direction, you zoom in to shorter timeframes, like daily, hourly, or even minute charts, to pinpoint the best entry and exit points for your trades. This approach helps you make more informed decisions by seeing both the broad trend and the finer details.

Step 1: Let's start with the monthly chart.On the monthly chart, we find the psychological support zone - an area on the chart where there are 3 or more candles resisting a price point. A support zone refers to a price level or area on a chart where an asset tends to stop falling and may even bounce back up. This zone acts like a "floor" where buying pressure is strong enough to prevent the price from dropping further. See image below on what a support looks like, and how we use a [Horizontal Line Tool] to chart on the candles.

Finding the monthly support zone helps us spot important price levels where the market tends to react. When we combine these support levels with ones from smaller timeframes, like the weekly, daily, or 4-hour charts, we can see a pattern of how the price moves. The price often "bounces" off certain levels, and depending on whether the trend is going up, down, or based on news, we can better predict where the price might go next and where it might face resistance.

Step 2: Move to the Weekly Chart

Next, we look at the weekly chart and apply the same process. What was a support zone on the monthly chart now appears as a broader range, spanning around nine weekly candles. The higher the timeframe, the stronger the signals, because a single candle on a higher timeframe represents multiple candles from a lower timeframe.

On the weekly chart, you might notice that the price has been moving sideways in a range since March 2023, with some fluctuations within that range. This tells traders two key things:

1. If the price breaks out of this range, it could lead to a strong move to a new price level.

2. Until a breakout happens, short-term trades within the range are more likely, focusing on smaller timeframes like the 1-hour or 4-hour charts.

Step 3: Look at the Daily Chart for Potential Price Movement

Now, we zoom into the daily chart to mark potential levels where the price might move, either upward to a new high or downward to a lower range. In the example, yellow horizontal lines mark potential "Breakout Take Profit" zones, showing where the price could go after breaking out from the range.

In this context, "range" refers to the price movement between two marked horizontal lines, as shown in the chart below. The price has been moving sideways, or staying within this range, for several days (each candlestick represents a day). This indicates the market is waiting for a big event or news to push the price out of this range in either direction. When the price breaks out of this range, traders often buy or sell aiming for the next key price level, known as the next "resistance" or "support" zone, where the price might pause or reverse. This is marked as the [Breakout Take Profit] zone in the chart.

Step 4: Use the 4-Hour Chart for Entry Points

On the 4-hour chart, you start looking for precise entry points. You may notice the price has bounced off the weekly support range and is starting to form "higher highs"—indicating an upward trend.

At the second high (resistance), looking to the left shows "clean traffic" (an area with no major price resistance) leading up to the Breakout Take Profit zone, signaling a potential long (buy) trade opportunity.

If the price retraces to the first higher high (support), this could signal a potential short (sell) trade down to the lower Breakout Take Profit zone, again following the clean traffic pattern.

"Clean traffic" refers to the path where there is little resistance, meaning price movements could follow past patterns without much hindrance, making it easier to predict price movements.

Drawing attention back to Step 3, where we also have a take profit breakout zone, in event the breakout is strong, or triggered by news events, you could potentially have price hitting all the way to those levels, allowing you to rake in greater gains. See the image below on what it looks like on the Day Timeframe, after charting the 4 hour markers:

How to Apply This Knowledge to Smart Trading Tools Like Copy Trading or Trading Bots

Now that you understand how to read charts and predict how a token’s price might move, besides manually trading youself, you can apply this knowledge to tools like Copy Trading or Trading Bots.

For Copy Trading, you can observe lead traders more carefully. See if they’re making risky moves or entering trades at smart points based on your understanding of support and resistance zones and looking at their trading history. Of course, it takes some work to plot down their entry and exit point on the chart, but it is worth it. This helps you choose the right traders to follow.

For Trading Bots, like the Spot Grid Bot, your chart-reading skills are equally useful. For example, if you see that ETH/USDT is trending upward but currently pulling back, you could set up a Spot Grid Bot. You would set the lower limit around the support zone and the upper limit around the breakout take profit zone. The bot will execute trades automatically within these limits, based on the parameters you set. Your chart-reading skills help you make better decisions when setting these parameters, making trading bots easier to use and more effective for you.

In the next topic, we’ll explore deeper into the more popular trading bot strategies, including Swing Bots, HODL Bots, and Grid Sniping Bots, as well as executing your first Grid Bot (or copying an experts one).