Crypto Technical Analysis: Step-by-Step Guide

One must either be in love with cryptocurrencies or have recently fallen for them in this exciting world. There is no other scenario. But across your path came the term ‘crypto technical analysis’.

But what is it, and how is it supposed to help you make wiser choices when you finally venture into investing in cryptocurrency? We will dive into this deep ocean of technical analysis and explain what it is all about and try to explain why it can be an instrumental tool for your investment tool.

What is Technical Analysis in Cryptocurrency?

Technical analysis is the study of past price movements and volume, using that information to make a prediction about what is most likely to happen to prices in the future. This can be applied not only to cryptocurrencies, but also to traditional financial markets, such as stocks and commodities.

Technical analysis of cryptocurrency simply means the application of these techniques in the real market of cryptocurrency. Among other things, a technical analyst will study the charts and the volumes of trade to identify patterns and trends that may indicate which way the price of a cryptocurrency may move.

It’s something simple, like reading the signs on the road to know what to expect and to avoid any surprises.

Follow Crypto Technical Analysis?

Another common question from people who are new to this world is whether to follow crypto technical analysis. We want to point out that most traders find value in using technical analysis. We must say that the market is still very young and can be quite volatile. This indicates that using the technical analysis can be useful over some time, but most times it is not so visible.

Cryptocurrencies are driven by a very wide variety of external factors, from sudden news or government regulations to tweets from influential personalities. Such events can move prices in a way that even technical analysis cannot prevent.

However, many traders believe that price patterns and volumes in trading follow long-term rules, making technical analysis useful for navigating a market.

Basic Technical Analysis Crypto

If you have no idea and you are an absolute newbie to start doing technical analysis for crypto, don’t be intimidated by it. No one is saying that you have to be a math assistant to do this. Just read through these basic concepts, and you can take your first step:

Candlestick Charts: These provide some of the most popular tools related to technical analysis. Each candlestick deals with a certain period of time – say an hour, a day or a week – and consists of four important information points: A candlestick chart is called a candlestick; it graphically depicts price movement in a stock market or financial markets at four basic points.

Open price: This is the price at which an asset starts trading when a certain period is opened. The opening price in a candlestick will show from either the top or the bottom of its body, depending on whether the price has risen or fallen in that period. Closing Price: This is the price at which the trading asset closes at the end of a period. In a candlestick, it is always on the other side of the point compared to where the open price is. A closing price higher than the opening price represents a price increase, and usually you will see a green candle. If the closing price is lower than the opening price you will have a red candle. Highest Price: This will be the highest price the asset has reached during such period. In the language of the candlestick, the peak price is represented by the tip of the shadow above the body of the candle. Lowest Price: This is the low price to which the activity has fallen during the period under consideration. This is represented in the candlestick by the lower end of the shadow or the “wick” below the body of the candle.

Therefore, these four prices provide a clear and immediate view of price action for the period, helping traders make decisions. By using candlesticks, you can identify trends and reversals in prices.

Support and Resistance: Another key concept is the support and resistance levels of a given trading pair. A support is a level through which at that position a large enough volume of orders is expected so that ‌prices do not fall further. Resistance, on the other hand, acts as the level where a large selling interest can impede the advance in price. They help identify at what level the price can stop or reverse its direction.

Technical indicators: These represent the mathematical tools used over price data to support the decision making process and subsequently appear as indicators. Some of the most common include RSI, which is a relative-strength indicator for the rate and change of price movements, and moving averages, to help you observe the general direction in which the trend is moving over time.

How to do crypto technical analysis

Now that you are familiar with the basics, let’s focus on some applied crypto technical analysis. This can be accomplished through the following steps:

Choose the right tool: There will undoubtedly be other independent websites that will provide tools to do the technical analysis of cryptocurrencies, but think along the lines of something like TradingView, the most popular. Just use your instincts and pick one. Get familiar with the charts and indicators it offers. Choose the cryptocurrency to analyze: Choose a cryptocurrency you are interested in to start with. Let it be Bitcoin, Ethereum and thousands of other altcoins. Once you are on the chart of the respective cryptocurrency, hold or want to analyze, set your time frame daily, weekly, etc. Trend Identification: You need to observe the chart to determine if the cryptocurrency is moving in an upward direction, a downward direction, or moving sideways. In most cases this will give an idea of ​​the direction it is likely to take in the future.

To identify a trend, just look at the price action. If it creates higher highs and higher lows, we are bullish. If we have lower highs and lower lows, we are bearish.

Use indicators: Add the previously mentioned indicators, such as RSI or moving averages, which will confirm the strength or weakness of a trend.

In this case we can say that there is a divergence because the chart shows lower lows, while the rsi shows higher lows.

Patterns Chart Check: Look for chart patterns such as head and shoulders or flags; they may give you an extra hint about future possible moves. Learn to see them; it is a very important element of technical analysis. Some of them are:

Bullish Flag Pattern: The bullish flag is one of the continuation patterns, which shows the possibility of a further price rise after a short-term period of consolidation in an uptrend. Bearish Flag Pattern: The bear flag is a continuation pattern in technical analysis, but indicates a much deeper potential decline in the price after a short consolidation. Head and Shoulders Pattern: Basically, the head and shoulders pattern indicates a trend reversal on the chart where a stock has the possibility of reversing an uptrend into a downtrend. Double Top: The double top is another reversal pattern, indicating a potential change from an uptrend to a downtrend.

Plan your move: Now, with all this information in hand, you can make the decision whether to buy, sell or just wait. But when you do this, always make sure to set stop loss levels, to be sure to protect your capital if the move goes unfavorably.

Conclusion: Mindful means everything

Technical analysis of crypto is fine to try to do anything within such volatile and bipolar markets, but it can never be done alone. Such analysis must always be in partnership with other forms of analysis and always accompanied by a close eye kept on the news and emerging events in these industries.

Just remember, there is no magic wand for predicting the future, and even the best technical analysis can go wrong. The trick is to guide yourself with these tools to make wiser decisions and not listen to some infallible oracle.

With this in mind, you should now have a much clearer view of what crypto technical analysis means and how you can use it.

Good luck with your trading, and always remember to only invest what you can afford to lose. The world of cryptocurrencies is really exciting and full of opportunities, but at the same time, it can be a rough patch that requires vigilance and preparation.

FAQ: Understanding Crypto Technical Analysis