Technical Analysis is a key skill required to master the art of cryptocurrency transactions, and numerous tools are currently available on the internet to facilitate this process. Basically, they are visual pointers, which will help the investor to know comprehensively about the current market price, trading volume, trends, and momentum patterns.
Relative Strength Index (RSI) and On-Balance Volume (OBV) are some of the pointers aiding the process of technical analysis. Investors will be able to make their choices smart and informed with the help of these pointers, thereby reducing the chances of a steep decline in prices and consequential losses significantly.
This article will thoroughly explain the fundamentals of technical analysis in Crypto trading, which will be insightful in every following step in crypto trading. The automated strategies implemented in the various tools of technical analysis will further make the decision-making process smarter, quicker, and more efficient.
Research and studies happening around crypto trading also prove that utilizing these pointers in technical analysis of crypto almost succeeds in speculations, and thereby promising you significant returns within a postulated period of time.
Mastering the skill of speculative trading usually requires years of observing the cryptocurrency market, gaining huge, lucrative margins and major setbacks interchangeably, playing with luck, and much more. The same skillset is now available to the investors, with just the basic knowledge to comprehend the technical analysis pointers.
How Does Technical Analysis Simplify Crypto Trading
Technical analysis is a visual representation of the degree of prominence of different crypto tokens. With the help of some mathematical formulas, technical analysis will be able to visualize the strength of each cryptocurrency token in the market. This visual representation may include their price, trading volume, and various other data of the coin that will help you understand the performance of the coin in the market for the time being.
This understanding is crucial for investors, whether they are about to make an investment in the coin soon or if they are just trying to stay up to date with the market trends and patterns. At some particular point, when a coin reaches a peak sale or peak buying, investors will be well informed if they are regularly into technical analysis.
Usually, there will be times of extreme bullish momentum after a steep decline. The investor can get to know this immediately if he or she makes it a point to keep an eye on technical analysis on a daily basis.
Technical Analysis in Crypto Trading for Both Discretionary and Systematic Traders
In the cryptocurrency market, the traders can be divided into two categories, namely, discretionary and systematic traders. Discretionary traders are more of a group of beginners in the cryptocurrency market. For them, the technical analysis will be beneficial for having clues and updates about the market.
Their investment and trading decisions will be solely based on the technical analysis. They look for the momentum of a coin in the market and then make up their mind on the next move. On the other hand, systematic traders are those who are already skilled and well-informed about the patterns and behavior to be expected in the crypto market, so that they will be mostly using the technical analysis as an additional assistance that will help them frame their own speculative values and momentum of a particular coin in the days to come.
Why Should You Use Technical Analysis Indicators for Crypto Trading
Crypto Trading is a financial activity involving a relatively higher risk percentage when compared to the traditional ways of investing and growing your hard-earned money. Hence, it is important to have a fair and deep understanding of the market patterns, investor sentiments, technical upgrades, and a lot more.
Enrolling for an educational course in full swing may not be the cup of tea for everyone. However, similar results can be achieved by studying the technical analysis carefully for a couple of minutes on an everyday basis.
Initially, figuring out conclusions from the indicators can be tough; however, with practice, one can stay consistent with the market trends using price charts. Some of the most important reasons for using technical analysis in your investment journey have been listed below.
- The price charts analysis will help the investor master the art of speculation over time. Speculative trading enables an investor to buy certain asset classes during an extreme bearish phase and sell them during the bullish period, or consider trading with them for an increased benefit.
- Usually, beginners just invest and stay away from advanced activities such as trading and staking in the blockchain network, just because of the risks involved. A user can easily upgrade to the trader or staker level if they are interested in investing a decent amount of time to study the technical analysis.
- It is also a proven way to add risk management to the skill sets. Risk management can be mastered when market behaviors are studied well in advance. All these are possible when someone studies the technical analysis with due respect and seriousness
Tools for Technical Analysis and How to Use Them Explained
As already mentioned, technical analysis is a form of visual representation. And there will be various visual tools to make the analysis possible. Some of the most used visual indicators and tools will be discussed below.
1. Candlestick Charts
This is one of the most commonly used indicators in the technical analysis of crypto trading. As the name suggests, there will be candlestick forms indicating rising and falling prices of the cryptocurrency tokens. Apart from that, they can also be used to identify the open and close price ranges. Price patterns of the coins can be understood, studied, and speculated on using these sticks. Price reversals and continuations are also evident in the information that can be obtained from these charts.
2. Support and Resistance
Price levels of the crypto coins are again the info that can be examined here, however, with a little twist. The rising points, falling points, and the points of stabilization can be understood from these charts, helping the investors to choose the best time to invest and sell the coins for maximum benefits.
3. Chart Patterns
Double tops, heads, and shoulders are the forms that are deployed here to ease the investment and trading decisions. These graphical forms are the best for speculations about a coin, analyzing its trajectories in the past.
Also Read : Bitcoin Rainbow Chart
4. Relative Strength Index (RSI)
Apart from the direction in which the price of a coin moves, it is also important to keep an eye on the speed at which these changes in prices are reflected in the market. This will benefit the trader to understand how quickly or slowly one should make decisions with the coin to reap the maximum margins possible. RSI or Relative Strength Index is an oscillating indicator that indicates the speed of the price changes in a crypto token. An RSI above the value of 70 indicates that the coin is currently overbought and is now exhibiting an extremely bullish momentum. An RSI value of 30 and below indicates that the asset is oversold at the moment and thus falls into the bearish trend.
5. Moving Average Convergence Divergence (MACD)
There will be two moving averages for every crypto token out there. Such moving averages can be found using MACD or Moving Average Convergence Divergence. The buying or selling potential of a cryptocurrency coin can be identified using this indicator. Trends in momentum and the directions of the trends can be understood using MACD.
6. Moving Averages (MA)
Trend direction is the main aspect to be analyzed from Moving Averages (MA). There are two different types of Moving Averages analyzed using the indicator, namely, the Simple Moving Average and the Exponential Moving Average. Simple Moving Average indicates the average closing price of the coin for a stipulated period of time. The Exponential Moving Average is focused on the recent price trends reflected in the coin.
7. Bollinger Band
The risk management side of crypto trading can be studied using this particular indicator. Volatility in the prices of the crypto tokens is being studied here. As the name suggests, a band is the graphical representation that a trader can use to understand the trends in volatility. If the band is wider in appearance, the volatility is higher, indicating higher risks. If the band is narrower, the risk percentage is relatively lower, making the coin a safer option for trading.
8. Fibonacci Retracement
Support and resistance levels are the things that can be studied using this tool. It uses a sequence called the Fibonacci sequence to make the representation possible.
Bottom Line
Learning the cryptocurrency market may take an irrational longer period of time. However, technical analysis makes the journey relatively easier. But learning how to use the graphical indicators involved in the technical analysis can also take time. But investing time to get a knack for this can definitely make significant progress in the skills of a trader. The article has also put effort into introducing a couple of the best tools and indicators to kick-start the technical analysis journey.
