Trading technical analysis of cryptocurrencies

Trading technical analysis of cryptocurrencies

Contents of this article:

Impulsive trading on a crypto exchange is not the best option for making money. Experienced traders do not rely on intuition, they use tools to help analyze the market and predict the future dynamics of the selected asset. Based on technical analysis tools, it is easier to find the optimal entry point to the market and improve trading efficiency.

What is technical analysis and how does it differ from fundamental?

Technical and fundamental analysis are among the main methods of studying the market to make a decision to open a deal. Fundamental analysis is based on the study by a trader of external factors that affect the value of a cryptocurrency – this may be news that can cause a change in quotes in the markets.

Technical analysis allows you to better understand the real situation on the market, it is used to determine the current trend based on the dynamics of the cryptocurrency rate, predicting the direction of further dynamics. In trading, the technical analysis of cryptocurrencies is performed using indicators and other tools. Applying them, the trader will not find the reason for the change in the asset’s rate, but will see the likelihood of an increase or decrease in the rate.

This type of analysis is based on exchange rate fluctuations and indicator signals. It is understood that the price change will continue, forming a trend. It is more suitable for traders who make money by speculating on the stock exchange; long-term investors often rely on fundamental analysis.

Three basic rules of technical analysis

Technical analysis in cryptocurrency trading consists of a variety of tools that traders choose based on their trading style and strategy. But the analysis has three basic principles:

  1. The market rate takes everything into account. The quote chart and trading volumes already take into account all the information required by a trader to build a strategy. This rule assumes that the asset price almost immediately reacts to factors that can influence it.

  2. The price moves according to the trend. In the crypto market, the mood of the players depends on the current trend, which lasts for some time. The trend can be upward or downward, it depends on the ratio of demand for cryptocurrency and supply. Possible correction, the movement of value in the opposite direction in the presence of a trend, or the absence of a trend, when the rate moves in a horizontal direction for a long time.

  3. History always repeats itself. If in the past the rate has changed as a result of certain circumstances, it is highly likely that under the same circumstances again the rate will react in the same way.

Indicators and graphs

Indicators are the main elements of technical analysis for trading. They are mathematical algorithms based on trading data, such as volume. Analyzing the chart and using indicators, a crypto trader can see a change in trend, the arrival of a major stock player who changes the course, signals to open deals. There are many indicators, such as oscillators, Fibonacci levels, RSI and others. Each of them has certain advantages and disadvantages.

The charts on which the analysis by indicators is based are also different. The simplest ones are linear, on them the course is presented as a broken line with dots, the dots display the cost of opening and closing on a time interval.

There are bars, charts, which are a series of bars. They indicate the cost of opening and closing, minimum and maximum indicators within one column.

Another common type of chart are Japanese candlesticks, at the same time they are also an indicator. Candlesticks are actively used by traders to study the situation on the market, because they show not only the price of an asset, but also its volatility, and help to make the most accurate forecasts.

Also, the technical analysis of cryptocurrencies in trading has figures and patterns that are formed on the charts from indicators. You can learn more about each analysis tool in the Crypto Crew community and in our course for traders. Get trained to effectively use analysis for profitable trading!