How to read a crypto/Bitcoin exchange (including candlestick chart and depth chart)

Now that we're in another season of crypto-hype, many of you are probably trying out an exchange for the first time And I gotta say, it's exciting! You get on an exchange like GDAX and you see all these numbers flashing on the screen and the price is rising and falling and so is your wealth

It's better than Vegas for real But if it's your first time here, it can be a bit overwhelming There's a lot of numbers to look at, and of course, you want to know what the important things to pay attention to are when you're trading Here we're looking at the Litecoin/USD exchange on GDAX, but this would be pretty much the same things if you were looking at any other exchange, whether it's for Bitcoins or Japanese Yen or pork bellies So, let's look at the default view

There are 4 main sections here: The order book, the price chart, your open orders, and the trade history In an exchange, everything is basically run on a name-your-price system If you want to buy, you say how much you want to buy at what price If you want to sell, you say how much you want to sell at what price If you're buying and there's someone willing to sell at that price, then a trade happens, and vice versa – if you're selling and there's someone willing to buy at your price, then a trade happens

If you were actively trading, any buy or sell orders that you've made, but haven't actually been fulfilled yet, will show up in this bottom pane titled open orders And then your order and everyone else's order shows up on the order book Let's freeze this Litecoin/USD screen for a second You can see that there's 8468315 Litecoins for sale for $312

82 each This is the lowest price that anyone's willing to sell their Litecoin at, at least on GDAX Now, it's important to remember this isn't necessarily one person's open order This is the sum of all open orders where someone is selling litecoin for $31282

If we look at the bottom half, that's all people buying These people are saying that they want to pay that much for litecoin, but nobody's willing to sell at that price yet So they're just sitting waiting until someone is willing to sell at that price And finally, right in the middle, you have the spread That's the difference between the lowest price currently for sale, and the highest price that someone is willing to pay for Litecoin

This is usually pretty low You'll probably see a one cent spread most of the time, because most prices near the current market price probably has someone buying or selling at that price After all, there are always lots of people trying to make a profit over any movement in the price Now, let's skip over the price chart for a second to look at the right-hand side This is the trade history

Any time Litecoins exchange hands, it shows up here You can see how much was traded, the unit price, and when it happened The price is also color-coded to show whether that trade raised or lowered the price of Litecoin If you see a lot of green trades scroll past, Litecoin's price is rising If you see a lot of red fill up the trade history, Litecoin's price is dropping

OK, now for the cool part The candlestick chart is one of the most stereotypical finance charts You see a candlestick chart, and the first thing that comes to mind is finance people trading stuff Don't worry, candlestick charts are actually very easy to read Depending on your settings, each bar represents a certain amount of time

I'm looking at a 5 minute chart, so each bar represents five minutes And each bar tells you four different numbers: the open and close, and the high and low It's very simple to explain: the opening and closing prices are the prices at the beginning and end of the five minutes, and that defines the body of the bar If the price of Litecoin ended up higher at the end of the five minutes, then the bar will be green and hollow If the price of Litecoin ended lower, then the bar will be solid red

The high and low are the highest price and lowest price that it reached at any point within those five minutes, and that's what the shadows – those little lines sticking out the top and bottom – represent in the chart So sometimes you'll see a really short body, with long shadows That means that the price really bounced up and down during that time period, but the price ended up not too far off from where it started at And once you get used to reading this, it's easy to get a sense of the activity for a whole day or month or year Also, this gray chart separately shows us the volume for each slice of time

That's a representation of how many Litecoin traded hands And you'll notice that when the price changes a lot, you'll typically also see a high volume Those are the exciting times, when lots of money is shuffling around and the price is going crazy and everyone thinks they're going to become rich or broke Moving on, there's another chart that you might not notice at first In the corner here, we can choose to see a depth chart instead

And what the depth chart does is it visually shows us approximately how difficult it's going to be for the price to get to a certain point Or, in other words, how many cumulative Litecoins stand between the current price, and another price Here's an example: if we were to start buying Litecoin at whatever the cheapest price is being offered, and assuming no one changes their open orders, by the time we buy one thousand Litecoin, the next cheapest Litecoin will be about $31450 If you ever browse crypto forums and chat rooms, you'll hear people talking about a "sell wall" sometimes

And what they're referring to are these vertical cliffs in the chart That vertical cliff means that there's a lot of coins for sale at that price So if the price of Litecoin starts going up, it might have a hard time getting past that price because there are so many people selling at that price You would need enough people also buying at that price to go higher Now, notice that I put in a huge assumption in my original example

What I said was true, "assuming nobody changes their open orders" Well, in any exchange, and especially one as nuts as Litecoin is right now, any time the price changes, orders start changing Remember, people are allowed to change their minds about their open orders before it's fulfilled So if you see Litecoin blow past a sell wall, it's also possible that a lot of people selling at that price changed their mind Maybe they saw that the price was rising quickly so they thought, "hey maybe I can get more for my Litecoin than what I'm asking for," and so they cancel their order

If we zoom out here, we see a huge buy wall at $300 even You can tell that people like pricing things at nice round numbers You could argue that this buy wall will help prevent the price of Litecoin from dropping below $300, but again, once things start moving, it's anybody's guess as to what happens Anyways, now that you've looked at GDAX for a few minutes, you're officially qualified to be one of those finance types Impress your friends and family with your newfound knowledge of trading! Talk to people about depth charts and order books! Show off that McLaren you bought with your day-trading earnings! Remember kids, [insert coin here] is going to the moon so you better get on board!

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