Technical Analysis in Crypto Trading

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The world of high volatility crypto is one of the most unpredictable markets. How do you know when to buy and sell if everything can change in an instant? Surprisingly, something as traditional as technical analysis works great even for crypto assets. Once a trader understands technical analysis, concepts such as the opening range breakout strategy or the shark pattern trading strategy will make sense and result in profits.

The background of technical analysis

Before this quick overview of technical analysis theory, it would be fair to remember the person who originated it – Charles Dow. The founder of the Wall Street Journal developed the assumptions upon which modern technical analysis is based.

The price knows everything

The idea here is that price is the best source of information about an asset. Therefore, there is no need to drill down into the sub-factors. If the price is going up, that’s exactly what you need to know, as it will be a natural market reaction to an asset’s rising value.

There are 3 possible market directions

According to this hypothesis, we have three trends:

Primary trend – this can last for years whether it is a bull or bear market. Secondary trend – also called corrections of a primary trend, this can contradict the main trend. Tertiary trend – short-lived trends that last no more than ten days and do not have much effect on the main trend. History is a spiral

This assumption justifies graphs and models – as they are all representations of past events. Thus, to obtain a prediction close to reality, it is essential to learn about history. Although it is not a 100% effective tool, it is one of the most widely used methods for predicting prices. Based on these assumptions, crypto technology analysis includes a set of tools and indicators that every trader can use. They hold certain information about the asset, and this is the basis for making a decision.

Candlestick Chart

The old Japanese rice measuring tool is now one of the most popular models among crypto traders. Traditionally, candlesticks are indicated in green for increasing prices and red for decreasing. Each of the candles has a body and a wick, shadow or tail.

It provides relevant information about the price movement of the asset. Whether it is a 15 minute time frame or a month, these candlesticks will give a clear picture of the trading history.

Support and Resistance

The support level is the line below which prices cannot fall, and the resistance level is the line above which prices cannot rise.

These two levels are crucial in reading charts and models. Based on these lines, a trader can predict how a price will move in the future.

Trend lines

Trendlines connect the highs and lows of a price chart or candle wicks – although they can only be based on closed candles. For traders, they serve as markers of upcoming trends and indicate their strength.

Moving average

This tool is useful when a trader wants to assess a price trend over a certain period or generate trading signals. Generally, there are two types of moving averages:

The simple moving average – the average of the total prices in a specified period of time. Exponential Moving Average – most recent prices disregarding past prices.

The most used are the moving averages over 10, 20, 30, 50, 100 and 200 days.

Relative Strength Index (RSI)

To determine whether to buy or sell, traders can sometimes use the Relative Strength Index – an oscillator that shows the value of an asset – whether it is overbought or oversold. It also helps to spot entry and exit points.

Bollinger Bands

Just like the previous tool, Bollinger Bands will determine price movements. Developed by John Bollinger in the 1980s, they help us understand market trends. There are three types of bands – those of the upper level, the lower level and the moving average. If the market price is above the upper level, it is a sign of overbought. Thereafter, if it is below the lower level, it is oversold.

Fibonacci retracement

The Fibonacci retracement is a crucial tool in crypto that shows the price at which a stock or cryptocurrency tends to see a trend reversal. Fibonacci retracement levels are based on Fibonacci sequence ratios, and it is almost impossible to miss in crypto trading because every live chart has this tool.

final thought

After some time in crypto trading, it becomes clear that technical analysis is a solid foundation for successful decisions. Of course, it does not provide simple predictions, but it gives accurate information about trends and past events. Further actions depend on the trader’s experience and strategy. The more tools, the better the results. Even so, despite the skeptical comments, technical analysis remains a staple in crypto trading.

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