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The Basics of Technical Analysis for Cryptocurrency Trading

June 10, 2021 Comments Off on The Basics of Technical Analysis for Cryptocurrency Trading By m-hash486

If you are interested in crypto trading you need to know what technical analysis is all about because without a proper trading strategy you cannot hope to execute successful trades. Technical analysis offers you insight into crypto movements in the past so that you can make accurate future predictions. In technical analysis, traders use real-world data for predicting future prices; they consider pasts statistics of cryptos such as price movements and trade volume. Unlike fundamental analysis that seeks to evaluate a crypto’s inherent value, technical analysis uses charts and patterns to assess a crypto’s strength and weaknesses.

Basics of technical analysis:

The Dow Theory can give one a good insight into the basics. This indicates that prices in the market consider many things like past, current, and future demands, expectations of traders, regulations, crypto trading knowledge, etc. Traders can use technical analysis to assess prices to figure out what the overall market sentiment is.

Technical analysis believes that history repeats itself as far as trends or prices go. It also believes that prices movements are not random; rather, these follow long-term and short-term trends.

What technical analysis entails:

  • Reading of candlestick charts is one of the most popular graphs which traders must learn in technical analysis. This looks challenging but one can learn it fast. Every plot on this graph looks like a candlestick; these are like rectangles which are pink or green with lines coming out from the top or bottom. The top and bottom indicate opening and closing price for a crypto on a day. While green ones suggest that prices went up, red indicates that prices fell.
  • Traders engaging in technical analysis need to understand trend lines that show which way a crypto moves. Because of high volatility, technical analysis must find the overarching trend; trends not only move up and down but also sideways which indicates that the crypto has not moved up or down significantly. If trend lines are accurate, your predictions will also be correct.
  • Support/resistance levels: This is equally necessary to do technical analysis. Both are horizontal lines which can be drawn on trade charts to get insight about a crypto. Support level is where traders will buy a crypto in high amount. When the crypto reaches this level there is a big demand which halts the decline. Resistance level is the reverse; when there is heavy supply but not enough demand buyers feel that a crypto is overpriced and do not buy it. When a crypto’s price attains this level it means excess supply and this pushes the prices down.
  • Trading volumes: This allows you to see whether a trend is indeed significant or not. High trade volumes suggest a key trend which you must pay attention to but low trade volumes suggest a weak trend. All new crypto trading applications introduced in the market undergo a test to prove the efficacy and the volumes of trade it can generate. For example, you can check the demo and try a bitcoin superstar test trade to see the power of the tool. The buyers can decide on the purchase based on the efficacy level.
  • Market caps: This will tell you whether a coin is stable. To calculate this you multiply the circulating supply with price of every coin. So, cryptos having larger market caps are more stable.
  • Relative Strength Index: Most charts include RSI which indicates the ratio of an average of how many days a certain crypto was up to an average of number of days it had been down. A crypto with RSI near 30 or lower indicates it is undervalued.
  • Moving Averages: This is needed for identifying trends; it depends on a coin’s average price during a certain period. EMA or exponential moving average is a type of MA which is more complex because weightage is given to recent price values.