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 8.468315
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 $312.82. 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 $314.50. 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!

3 thoughts on “How to read a crypto/Bitcoin exchange (including candlestick chart and depth chart)”

  1. Really appreciate this video. So clear and informative. Finally fully understand depth charts now thanks to you. Will be following you to keep learning more

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