Choosing a Chart For Analysis

Trading 200 Quicklinks
Trading 201: Choosing a Chart For Analysis
Trading 202: Price Chart Indicators Configuration
Trading 203: Trading Method
Trading 204: Trade Signals and Trade Recommendations
Trading 205: Trades at Different Timeframes
Trading 206: Divergence and Reverse Divergence

When doing day-to-day chart analysis, it is prudent to use a variety of charts: to cross-reference price moves, to find correlations and to compare indicators. In the end, every trader and analyst will have their preferred chart, to which they return, for final reference to support and resistance levels, Fibonacci tool measurements and various running annotations.

It, therefore, makes sense to consider the various factors that determine how accurate and representative (of the wider Bitcoin market) your chosen price chart is.

Price History

When analyzing current intra-day price waves, it is often useful to refer to prior, similar junctures in the chart. For example, the question “How did price react the previous time this price pattern formed in the chart?” is easily answered by zooming out one’s view of the chart and comparing, wave-by-wave, to previous pattern instances in the chart. If the chart being used lacks price history, then the task is complicated by having to refer to other exchange charts and having to determine equivalence between charts with unmatched scale, time proportion, etc.

Having sufficient price history – preferably as much as possible – in a single chart also aids long-term studies at large timeframes like 4-hour and 1-day candle resolution. By having as much price history as possible in a single chart view, the task of finding historical trends and price patterns is facilitated.

Moderate Price Movements

The type of trade that is reflected in a price chart has a noticeable effect on the chart’s price candle range. An exchange with low liquidity (few participants) will display price gaps during periods where no trades were executed or during periods where a sudden order (of nominal size) shifted the exchange’s Last Price from one price level to another. More liquid exchanges have a consistent flow of trades and the resulting price candles yield a more consistent display of trade, and price, activity.

Price Gaps in the ITBit 1-Day BTC/EUR Chart

ITbit_Bitcoin_price_chart_d1_15h15_100415_xbt.png

Does this mean that the most liquid exchange charts are preferable? Not necessarily. Consider the impact that margin trade has on a chart: For example, some traders hold leveraged buy positions during a downtrend. The market experiences a sell-off and those leveraged long positions are liquidated at a critical level. Liquidation of margin-based (leveraged) positions involves the sudden, and complete, closure of losing positions requiring an opposing transaction to be executed in the exchange’s orderbook. In our example of losing leveraged buy positions, the exchange would close those positions via equivalent sell transactions in the orderbook. The outcome is often seen as compounded selling pressure with price spikes resulting to the downside as the losing buy positions are added to the sell-side transaction flow.

Price Spikes in the Bitfinex 1-Day BTC/USD Chart

Bitfinex_Bitcoin_price_chart_d1_15h14_100415_xbt.png

Leveraged trade therefore distorts price candles with price spikes and exaggerated price movements. When doing Elliott Wave analysis this can lead to incorrect wave counts and ambiguous price / indicator readings. Indicator analysis may also become less accurate as a consequence.

So, Which Chart Should I Use?

BTC-China has a trading history that spans from mid-2011 until present. This is also true for the BTC-e and Bitstamp charts, so why not use them? Like many other analysts, xbt.social uses the Elliott Wave Principle framework as a guide to market behaviour. Bitstamp has the drawback that it’s low liquidity price movements lag the other charts and the wave patterns are therefore skewed – or ambiguous – during many price moves.

BTC-e and Bitfinex (arguably, the most-used exchanges amongst traders) have the additional drawback that their price charts are scarred by spikes caused by leveraged trade and the associated effects, at the termination of strong price moves, that margin calls have on price at those exchanges. This makes the chart difficult to read – as price spikes de-emphasize surrounding price candles – as well as, the obvious difficulty of deciding whether to use the candle high/low or close as the practical extent of the move.

Moderate Price History in the BTC-China 1-Day BTC/CNY Chart

BTC-China_Bitcoin_price_chart_d1_15h14_100415_xbt.png

BTC-China recently introduced margin trade at low leverage. However, the bulk of daily CNY-based trades still appear to be non-leveraged, straight-in-straight-out trades and the resulting price chart is moderate, clear and well-suited to analysis. The long chart history makes comparative analysis between price waves and time periods easy, and zooming in and out of the chart renders undistorted candles and indicators, where leveraged exchange charts are rendered unreadable in the vicinity of their price spikes. The sheer liquidity of BTC-China’s orderbook is another reason for preferring its price chart as a barometer of majority market sentiment.

Each trader and analyst should decide, for themselves, which price chart they use for the bulk of their analysis. At the very least, use the futures chart of your preferred margin/futures exchange or broker, and also use a price chart with a long price history and moderate, non-leveraged price activity. Switch between the two regularly during your trading session and familiarize yourself with their idiosyncrasies. Each chart has a character and signature in the way it forms certain price waves – traders should accustom themselves to these via constant study of the same chart.

xbt.social analysis prefers the BTC-China chart as a constant reference chart, with variation and leveraged price action referenced via the Bitfinex chart, although the latter choice may change depending on market conditions and member preference.

Feel free to ask questions or open discussion in the Bitcoin Price group if you require clarification or have views regarding chart preference.



Trading 200 Quicklinks
Trading 201: Choosing a Chart For Analysis
Trading 202: Price Chart Indicators Configuration
Trading 203: Trading Method
Trading 204: Trade Signals and Trade Recommendations
Trading 205: Trades at Different Timeframes
Trading 206: Divergence and Reverse Divergence

©2016 xbt.com in partnership with CryptoCoinsNews & Hacked.com

Log in with your credentials

or    

Forgot your details?