There is no exact science to reading markets. But that hasn’t made technical analysis any less popular among crypto traders looking for the next obscure indicator that will lead their portfolio to glory.
Technical analysis has technically been around for centuries. Its roots can be traced back to the 17th century during the Dutch Golden Age, when traders began studying prices to predict future market behavior. But it’s more accurate to say that what most Twitter anons and crypto market analysts think of as “technical analysis” originated in the early 20th century. This is thanks to Charles H. Dow, the founder of the Dow Jones Industrial Average and co-founder of The Wall Street Journal.
While the fundamental elements of technical analysis remain, analysts have had to adapt the way it is applied and interpreted in the often volatile and always-on cryptocurrency market.
What follows is a mix of classic technical analysis terms and terms introduced over the last decade as chart watchers figured out what to look for in crypto markets.
Bearish
A bearish outlook indicates that an investor expects a market, share or asset to decline in value. Being bearish reflects pessimism about the future performance of an asset or the market.
Bearish investors may sell assets to avoid losses, short-sell stocks betting on their decline, or use strategies that capitalize on a downward market trend.
Bitcoin N/A ratio
The Bitcoin network value-to-transaction ratio is used to determine whether Bitcoin, specifically, is overvalued or undervalued based on its transaction volume.
It is analogous to the PE (Price to Earnings) ratio used in stock market analysis, but adapted for digital currencies. The NVT ratio is calculated by dividing the market capitalization (or network value) or Bitcoin by the daily dollar volume transferred through the blockchain.
Bollinger Bands
A technical analysis tool defined by a set of lines plotted two standard deviations (positive and negative) away from a simple moving average (SMA) of a security’s price (see: Exponential Moving Average below). They are named after the American certified financial accountant John Bollinger.
break out
A breakout in financial markets refers to a price movement through an identified level of resistance or support, which is usually followed by heavy volume and increased volatility. Breakouts can occur in any direction, but they are more significant when they occur in the direction of the prevailing trend.
Bullish
A bullish outlook indicates that an investor believes that a market, stock or asset will increase in value. Being bullish reflects optimism about the future performance of an asset or the market as a whole.
Bullish investors may buy assets in anticipation of price increases, hold onto assets expecting them to appreciate, or engage in strategies that take advantage of an upward market trend, such as going long on stocks or digital assets.
Candlestick chart
A type of financial chart used to describe price movements of a security, derivative or currency, showing the high, low, opening and closing prices for a specific period of time.
A candlestick chart. Image: Shutterstock
Green bars indicate days where the closing price was higher than the opening price, while red bars represent days where the closing price was lower than the opening price. The lines extending from the bars, or wings, show the change between the day’s low and high prices. Day traders in crypto and traditional markets will often adjust the timeframe for candlestick charts to shorter increments, ranging from hours to as short as one minute.
Chart Patterns
Distinctive patterns formed by the movement of security or digital asset prices on a chart. They are the foundation of technical analysis. Some common ones include head and shoulders and reverse head and shoulders.
Day trading
The practice of buying and selling a security within a single trading day. Especially popular in crypto due to market volatility.
Doji
A candlestick pattern that indicates indecision among traders is represented by a candlestick with a small body and equal or nearly equal shadows. Often seen in crypto markets as a sign of potential reversal or continuation.
Elliot wave theory
A method of technical analysis that looks for recurring long-term price patterns associated with ongoing changes in investor sentiment and psychology. Often applied to crypto markets for predicting price movements.
It was developed in the 1930s by Ralph Nelson Elliott, based on the observation that financial markets move in repeating cycles, which he believed were the result of investor reactions to outside influences, or dominant psychology of the masses at the time.
Exponential Moving Average (EMA)
Similar to a simple moving average, but gives more weight to the most recent prices, making it more responsive to new information.
A simple moving average (SMA) is a basic technical analysis tool used to smooth price data by creating a continuously updated average price. The SMA is calculated by adding up the closing prices of an asset over a specific number of time periods (such as days, weeks or months) and then dividing this total by the number of time periods.
Calculating an EMO involves several steps, with the initial step being the calculation of the SMA for the initial EMO value.
Fear and Greed Index
The fear and greed index is a tool used to measure the sentiments of investors in the financial markets, especially in the cryptocurrency market, although it can also apply to stocks and other assets. This index interprets emotions and sentiments from various sources and consolidates them into a single number on a scale, typically ranging from 0 to 100.
A low score indicates “Fear,” which suggests investors are worried or pessimistic about the market’s future, which can mean assets are undervalued as people sell their investments. A high score represents “greed”, which implies that investors are becoming overconfident or greedy, potentially leading to overvalued market conditions due to excessive buying.
Fibonacci Retracement
A tool used to identify potential support and resistance levels based on a series of numbers derived from the Fibonacci series. Often used in crypto trading to set reversal levels.
Gap
A break between prices on a chart that occurs when the price of a stock makes a sharp move up or down with no trade taking place in between. Not as common in 24/7 crypto markets, but still observed during important news or events.
Head and shoulders
A chart pattern that predicts a bullish-to-bearish trend reversal and is one of the most reliable trend reversal patterns.
Head and shoulders chart pattern. Image: Charles Schwab
Inverted head and shoulders
The opposite of the head and shoulders pattern, it indicates a reversal of a downtrend.
MACD (Moving Average Convergence Divergence)
A trend-following momentum indicator that shows the relationship between two moving averages of a security’s price.
Market capitalization
The total market value of a cryptocurrency’s circulating supply. It is calculated by multiplying the current price of a coin by its circulating supply. A key metric in crypto for judging the overall size and importance of a coin.
Moving Average (MA)
A technical indicator that shows the average price of a security over a specified period of time, and plots price data to identify the direction of the trend.
Oscillator
Any technical analysis indicator that varies over time within a band, above and below a median, or between a set of indicator bands.
Relative Strength Index (RSI)
A momentum oscillator that measures the speed and change of price movements, typically used to identify overbought or oversold conditions.
Resistance level
A price level where a trend may interrupt or reverse due to a concentration of selling interest.
Satoshi (SAT)
The smallest unit of Bitcoin, equal to 100 millionths of a Bitcoin. Used to print smaller transactions and valuations in the crypto market.
Stochastic oscillator
A momentum indicator that compares a particular closing price of a security to a range of its prices over a certain period of time.
Support level
A price level where a downtrend can be expected to break due to a concentration of demand or buying interest.
Swing Trading
Swing trading is a type of trading strategy that aims to capture short- to medium-term profits in a stock (or any financial instrument) over a period of a few days to a few weeks. Swing traders primarily use technical analysis due to the short-term nature of the trades, although they may also use fundamental analysis or a combination of both to make their trading decisions.
Tokenomics
Tokenomics, a portmanteau of “token” and “economics,” refers to the economic principles and characteristics that govern the issuance, distribution, and management of a cryptocurrency or digital token within its ecosystem. It includes the rules and incentives designed to ensure the stability, usability and growth of a token. Understanding tokenomics is crucial for investors, developers and users to evaluate the potential value and sustainability of a cryptocurrency project.
Some common elements of tokenomics include supply, distribution, utility, governance, and incentives.
Tendency
The general direction in which the price of an asset moves – up, down or sideways.
Triangles
Triangles can be ascending, descending or symmetrical. Ascending triangles have a flat upper trendline and a rising lower trendline, suggesting a continuation in an uptrend.
Ascending triangle pattern. Image: Shutterstock
Descending triangles have a flat lower trendline and a descending upper trendline, suggesting a continuation in a downtrend. Symmetrical triangles have converging trend lines and suggest a continuation, but require confirmation of the direction.
Volume
The number of shares, contracts traded, or coins traded in a security or market during a given period of time, which is used to measure the strength of a price movement. Often considered in crypto markets to analyze trading activity levels.
Volume Analysis
Examining the number of shares or contracts of a security traded in a given period to determine the strength of a price movement. Especially important in crypto to gauge market interest and potential trend reversals.
Editor’s note: This article was written with the help of AI. Edited and checked by Stacy Elliott.
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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