With the introduction of Bitcoin, the big bang event of the cryptocurrency world, the 24×7 crypto market started on a global stage. In a mix of decentralized and centralized exchanges, the crypto market is highly volatile and quite unpredictable. Furthermore, the borderless operation of the cryptocurrency market brings a new set of challenges to traders worldwide. With no centralized regulations, the price of cryptocurrencies moves in a highly volatile manner. The price trend can quickly reverse based on market sentiment, technology-based developments, news related to regulations, and even social media trends. For example, a single tweet from Elon Musk has been known to cause huge swings in the market.
Amidst such high volatility, the rapid price movements present massive opportunities. Traditional technical analysis comes in handy when identifying opportunities. Using the relevant technical analysis and tools, traders can navigate the highly volatile crypto market. With a technical approach, traders can identify and pinpoint entry and exit opportunities to make educated trading decisions. This learning guide will help you understand the essential tools and charts needed to start a successful cryptocurrency trading journey.
Understanding Technical Analysis
At the core of technical analysis, the price action is the main component. It relates to the price movement of an asset over a period of time in three main directions: uptrend, downtrend or sideways trend. In a candlestick chart, the movement leads to multiple patterns and highlights various areas of supply and demand. These areas of supply and demand help traders decide whether to buy or sell a cryptocurrency. Areas of high demand may reveal buying opportunities despite the cryptocurrency falling into a downtrend and vice versa. However, traders should remember that breakouts from such levels are possible.
Furthermore, it also involves technical indicators such as the relative strength indicator or moving average convergence divergence and various other tools such as the Fibonacci retracement levels or Pivot levels to predict future price movements. While fundamental analysis deals with the intrinsic value of the projects, the estimated movements are vague and speculation-based. So it offers a better point of view than a fundamental approach. However, some sharp moves based on news, global market fluctuations, FOMO and FUD moves, etc., can stay off the radar.
Essential tools for technical analysis
To know the law crypto technical analysis tools is crucial to survive in the cryptocurrency trading market as technical analysis makes heavy use of charts, indicators and other data sources. Choosing the right strategy and applying the correct tools on the right time frame chart separates profitable traders from others.
1. Key cards and indicators
a.
Candlestick charts
Most top cryptocurrency traders perform crypto chart analysis using candlestick charts to visualize price action over different time frames (eg one hour, one day). Furthermore, the OHLC prices (open, high, low, close) form different candles, generating various patterns. Trading decisions can be made using different candlestick patterns, such as the morning star or evening star, along with price patterns, such as double bottom or double top.
b.
Moving Averages (MA)
Moving averages are crucial tools in technical analysis for crypto. They identify price trends and even provide a dynamic supply or demand level. There are several types of moving averages: Daily, Simple and Exponential. The Simple Moving Average (SMA) calculates the average over a period of time, giving equal weight to all price points. However, the exponential moving average (EMA) gives additional weight to recent prices. Consequently, exponential moving averages (EMA) react faster than SMAs. The moving averages give a buy signal when a smaller period average line crosses above the larger one, giving a bullish crossover, and vice versa. Furthermore, the importance of the 50 and 200 average lines is critical, providing the golden cross (bullish) or death cross (bearish). That is why the moving averages are one of the best trading indicators for crypto.
c.
Relative Strength Index (RSI)
The relative strength index (RSI) is a trend momentum indicator used in technical analysis for crypto to measure rapid changes in crypto prices. The RSI ranges from 0 to 100, with 70+ values painting the asset as overbought and below 30 as oversold. It is calculated by comparing the magnitude of recent gains to recent losses. If the RSI line hits or exceeds the extreme limits, a reversal in the cryptocurrency price is possible. Deviations also play a critical role in finding buying or selling opportunities.
d.
Bollinger Bands
Bollinger Bands is a volatility indicator that forms a price band in the chart. It contains a simple moving average (SMA) centered with two bands of two standard deviations. The band can compress or expand based on price volatility to reflect trend volatility.
2. Popular Technical Analysis Tools and Indicators
a.
TradingView
TradingView is a widely used platform by traders worldwide, making it one of the best crypto analysis tools. It also fosters a trading community to share ideas and strategies. With a user-friendly interface, it helps traders with cryptographic analysis across different timeframes with various indicators and tools.
b.
Coinigy
Coinigy is a trading platform that brings comprehensive market data from multiple exchanges to traders. With real-time market data, charting tools and API access, experienced traders use Coinigy. Integrating multiple exchanges helps traders avoid switching between exchanges to execute trades.
c.
Metatrader 5
MetaTrader 5 is a professional trading platform used by professional forex traders, and it has recently become famous among crypto currency traders for crypto chart analysis. MetaTrader offers a variety of features, including automated trading, highly customizable indicators, algorithms for various trading strategies, and much more. Known as one of the best platforms for performing backtesting, MT5 is a powerful tool for serious traders with cryptocurrency technical analysis charts.
d.
CryptoCompare
CryptoCompare is a market data aggregation platform that provides real-time data from various cryptocurrency exchanges. It offers insights into price movements, market trends and trading volumes, along with the features of portfolio tracking tools, news updates and a range of educational resources.
3. Developing a trading strategy
Just like pilots, the pre-flight checklist and a well-balanced take-off and landing strategy, trading also involves a well-defined strategy. While managing the risk, the traders should mark the entry and exit points to maximize returns.
Here are some proven trading strategies:
Trend Following – As the name suggests, the trend following strategy involves the “herd mentality” followed in the market. Similar to Newton’s first law of motion, a trend in motion remains in motion, giving traders a smooth rally in either direction to ride the momentum. However, one should be ready to jump ship if the signs of reversal are visible. Scalping – Using the high frequency trading strategy, scalping involves making small profits by making several trades in a day. Scalpers make the trades primarily using technical analysis over short time frames and rely on RSI and Bollinger Bands to mark quick entry and exit points. Swing Trading – Unlike Scalpers, traders who use the swing trading strategy hold positions for several days or weeks. Using the basics of trend following, traders attempt to take advantage of “swings” in the market. Since this involves more patience, traders rely on Fibonacci retracement, trend lines and moving averages. Day trading – In day trading, traders execute the entry and exit trades on the same trading day. Unlike Swing traders, day trading requires a strong understanding of technical analysis to make quick decisions. And, unlike scalpers, day traders must be more vigilant and patient to hold positions throughout the day.
Deduction
Unlike the stock and forex markets, crypto requires a strong understanding of tools, charts and complex strategies. While technical analysis helps traders find potential buy and sell spots in the market trends and potential price movements, it is important to remember that no strategy is foolproof. As in any other field, traders must hunger for continuous learning, practice and discipline. Therefore, before risking real capital, traders are encouraged to test their strategies and use demo accounts. This will help them develop self-confidence and sharpen their psyche.
Frequently Asked Questions
Do chart patterns always work?
Chart patterns are effective but not guaranteed. Under volatile market conditions, the pattern can often reverse. Therefore, a broader market understanding must be applied to chart patterns to avoid getting caught.
Which Crypto Exchange is Best for Crypto Technical Analysis for Beginners?
Crypto beginners should compare crypto exchanges that offer demo accounts, user-friendly charting tools, and educational resources. Visit our best crypto exchange list, and display platforms that offer demo accounts for practicing technical analysis.
What are some common mistakes beginners make in technical analysis?
The most common mistake seen is traders relying heavily on a single indicator. Ignoring broader market trends and adapting strategies to changing market conditions can delay success in one’s trading journey.
Disclaimer for Uncirculars, with a Touch of Personality:
While we love diving into the exciting world of crypto here at Uncirculars, remember that this post, and all our content, is purely for your information and exploration. Think of it as your crypto compass, pointing you in the right direction to do your own research and make informed decisions.
No legal, tax, investment, or financial advice should be inferred from these pixels. We’re not fortune tellers or stockbrokers, just passionate crypto enthusiasts sharing our knowledge.
And just like that rollercoaster ride in your favorite DeFi protocol, past performance isn’t a guarantee of future thrills. The value of crypto assets can be as unpredictable as a moon landing, so buckle up and do your due diligence before taking the plunge.
Ultimately, any crypto adventure you embark on is yours alone. We’re just happy to be your crypto companion, cheering you on from the sidelines (and maybe sharing some snacks along the way). So research, explore, and remember, with a little knowledge and a lot of curiosity, you can navigate the crypto cosmos like a pro!
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