As the cryptocurrency is gaining traction in the current financial market system, crypto enthusiasts are increasing in the number who want to understand the markets and invest accordingly. To invest in any crypto asset, it is essential to understand the market conditions, the right time to buy or sell and also the risks associated with various markets. To have a crisp knowledge of currencies, technical analysis for cryptocurrency is necessary.
Technical analysis is an approach to understand the market sentiments and specific trends of the crypto marketplace for making the wiser predictions related to trading. Bitcoin technical analysis involves a statistical study of the price history and trading volume of the bitcoin and identifies patterns for making decisions related to investments.
Technical analysis of cryptocurrency is calculated by considering three assumptions:
Technical analysis focuses on past trends to predict the future by studying the charts in the present. Based on the three assumptions, basic ways are majorly used for the analysis:
If you had landed on this guide after getting tangled in the trend or direction lines of the prices of a particular coin, then you must be trying to explore the meaning of those lines.
Japanese candlesticks or trend lines or direction lines are used in analyzing the history of price charts. They are either red or green, having a vertical rectangular shape with lines emerging out from top and bottom (signifies the highest and lowest range in 24 hours). Each candle represents the movement of the price of an asset for a specific interval of time. The rectangular part signifies the difference between the opening and closing balance of coins in a particular period. Green candlestick indicates the increased value of a currency (top: closing, bottom: opening) while red candlestick indicates the decreased value of the coin (top: opening, bottom: close) during the day. Candlesticks portray the exactness of the market and help in identifying the various patterns for the technical analysis of cryptocurrency.
Note: Determines the limit of the price of Bitcoins
Along with vertical candlesticks, there are horizontal lines of support and resistance. These trend lines signify the volume of a particular asset in the market, i.e. demand and supply of the coin.
Support Level: Trend lines show that the price of an asset tends to stop falling. At the support level, a significant number of traders tend to buy the coin, thereby demonstrating the high demand among those who consider that price is low enough to buy that particular asset. When the price comes down to a certain point (floor), buyers flip, and the price will bounce off from that level. In some cases, the momentum of upward trend also changes.
Resistance Level: Trend lines show that the price of an asset tends to stop rising. At the resistance level, a significant number of traders wait to sell their coins, thereby demonstrating the more considerable supply trend among those who consider that price is high enough to sell the particular asset. When the price reaches up to a certain point (ceiling), sellers encounter, and the trend starts to reverse.
When either support or resistance levels breakout, technical analysis of cryptocurrency needs to be done more carefully as it indicates the higher probability of strengthening existing trends. Also, a more strong trend is observed when the resistance level turns to support level and tested from above, after the breakout.
The approach of moving trends is also considered to simplify the recognition of patterns. So, how to analyze cryptocurrency trend with moving average? When the average price of the coin is taken for a certain period, it is called moving averages. By calculating the average prices of 20 days before the given day, the moving average can be calculated. Thereby, you can notice the trend for a prolonged period rather than for the tick of time. There are two types of moving averages:
Thus, if you are considering hours for trade (day trader), EMA may guide you by providing spot price fluctuations. For a more extended period, SMA can be adopted to analyze the market. Hence, moving averages one of the approaches which must be considered during the technical analysis of cryptocurrency.
Statistical and analytical tools available in the crypto space can help you in starting the technical analysis of the cryptocurrency. Services of TradingView and Coins, which provides the diversified charting services can be utilized for initiating the review of various crypto assets.
Technical analysis can undoubtedly help you in increasing your profits and decreasing your losses. But, technical analysis is not the game which you can master in a day. You have to continually study the charts, utilize the various tools, keep an eye on the trends of the markets and most importantly practice by putting your money as per your analysis (small amount in starting). Technical analysis of cryptocurrency may be daunting initially, but as you start analyzing the trends, you might develop a high level of interest and could become master one day.
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