Cryptocurrency Technical Analysis – Analytics Basics

Cryptocurrency Technical Analysis – Analytics Basics

The popularity of cryptocurrencies is growing, which means that more and more traders will appear on the market and exchange. But in order to properly trade any currency, both fiat and crypto, you need to be able to analyze the market. By understanding how to predict a trend, a trader will be able to make good money. 

Economic news affects the cryptocurrency rate. But a fundamental analysis line when predicting the price movement of bitcoin or other cryptocurrencies is indispensable. Cryptocurrency technical analysis is also very important. It will help you open profitable positions. 

Technical Analysis of Cryptocurrencies: The Basics of Dow Theory

  • The market takes into account everything: the price of a cryptocurrency changes spending on the current, past, as well as future demand. In addition, it is sensitive to any changes in the regulation of digital money. 
  • Price dynamics are not chaotic: price changes clearly follow trends.
  • Technical analysis is aimed at historical changes in price dynamics, and not at the parameters that influenced this transformation. In technical analysis, only changes in supply and demand are important. 
  • History is always repeating itself. Market behaviour is predictable: most often traders react in the same way to certain events. 

Bitcoin Analysis: What’s What

A trend is essentially a simple direction in which the price of an asset is moving. But the trend for cryptocurrencies is sometimes difficult to predict because they are usually characterised by high volatility. For example, the bitcoin rate on the chart resembles a series of sharp ups and downs. 

So how do you analyze high volatility bitcoin? Competent technical analysis rarely pays special attention to volatility surges. They know how to predict an upward trend in price when the chart shows higher extremes. If, on the contrary, the chart reflects a sequence of lower than usual extrema, then trends will be downtrend. cryptocurrency technical analysis is very convenient to carry out with moving averages. 

They help to quickly and easily respond to short- term price fluctuations. Of course, traders also use various patterns that form on the chart with regular price changes for the cryptocurrency. Basically, these patterns are repeated, which allows the cryptocurrency trader to make very accurate predictions of further price movement over time. 

The Most Common Technical Analysis Patterns

  • Head and Shoulders – Represents three consecutive peaks. This pattern often appears on the chart after a stable, long trend. Double bottom or double top.
  • A double bottom is often drawn on a chart after a downtrend, and a top, conversely, is drawn after an uptrend. Typically, such a pattern indicates an upcoming change in the direction of the trend.
  • Rectangle. This chart pattern symbolizes a pause in the trend. During this event, both sellers and buyers have the same chance of success. It is worth noting that the rectangle only works if the price crosses the horizontal side of the pattern.
  • Flag and Pennant – Indicates the period of consolidation within a changing trend. Formed on a chart, this pattern usually signals an abrupt trend reversal for a cryptocurrency.
  • Japanese candlesticks are the colors of the candles; their various combinations act as a specific trading signal. This method is quite difficult for a beginner to understand, but Japanese candlesticks are one of the most effective analytical tools.

The difficulty of applying technical analysis in cryptocurrencies is that this market is young and not yet fully formed: the physical usefulness of cryptocurrency platforms has not been determined, issues with regulators have not been resolved, etc. Therefore, market psychology remains the main factor influencing the quotes. And so far, the only technical analysis tool that takes into account the psychology of traders is level.

Types of Technical Analysis Levels:

1. Support and resistance levels.

A quotes movement corridor is formed, where the middle is the median (equilibrium) price value. Can be straight lines (not necessarily horizontal) or dynamic. An example of plotting a dynamic price corridor is the Bollinger Bands indicator range.

2. Round levels.

Psychological markers where traders often place pending orders (stops or take profit). Firing orders reverse the price.

3. Fibonacci levels.

They are a mathematical sequence of numbers. The breakout of each subsequent level is assessed as a continuation of the trend with the prospect of a reversal at the next Fibonacci mark.

You can use scripts or indicators to build levels, but the visual method is more reliable. Levels are plotted at least 3 points at High / Low or Open / Close prices; building by the High / Open or Low / Close type is not allowed.

Given the volatility of the cryptocurrency, it would be useful for a trader to remember about trading volumes, as an increase in sales is a signal of a strengthening trend. A decrease, on the contrary, indicates a weakening of the trend.

Competent technical analysis, taking into account the news of the economy, as well as following a good trading strategy on the crypto market – this is what a cryptocurrency trader needs for profitable transactions.

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