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Cryptocurrency Technical Analysis For Trading

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Computer screen depicting a graph of Cryptocurrency Technical Analysis.

Trading has been one of the most attractive professions for investors and those looking to trade in real-time in different markets for many years. Every active investor has experienced the evolution of financial markets and the changes in how liquidity moves during certain economic and political changes in the world. During the last decade, the cryptocurrency market has taken center stage in the world and has offered huge profit margins for many investors. It is for this reason that cryptocurrency technical analysis serves the purpose of deepening the understanding of how the trading system works, and help you make more informed decisions as a trader.

Many strategies have been developed to improve the understanding of cryptocurrency trading. Beyond Bitcoin and traditional crypto assets, many altcoins have surprised their investors with their outstanding performance over the last few years, returning more than 1000% of investments in the medium term. For this reason, today we will talk about the technical analysis of cryptocurrencies and how we can strengthen its presence for trading. 

What is Cryptocurrency technical analysis?

The technical analysis of cryptocurrencies is the study intended to foresee the future direction of the prices by analyzing historical data of the crypto market, where Bitcoin and hundreds of altcoins live. To achieve this, this technique makes use of data related to prices, volumes, and open market interest.

To obtain a favorable price estimate, technical analysts use trading data in conjunction with mathematical indicators to make their decisions when trading. The results of these formulas are automatically reflected in a graph that is updated in real-time, which will be interpreted by traders to determine when it is optimal to buy or sell.

A black and white image of a graph used to illustrate cryptocurrency technical analysis.

Thanks to cryptocurrency technical analysis, it is possible to predict the direction of the prices, making it one of the primary tools to predict the behavior of the crypto market, despite its high volatility. The union of technical and fundamental analysis allows traders to have a more complete assessment of the reality of the market. Thanks to this, traders can gain a clear advantage when carrying out profitable trades.

What does cryptocurrency technical analysis tell us? What are the factors?

Technical analysis develops our intuition and insights by monitoring of the market, making sense of the strategies and principles that are employed in the market. The crypto market is also vulnerable to world events and to the amount of money that enters the different assets, so prices will undertake certain trends that we can decipher based on the behavior of past trends.

The most important principle of crypto technical analysis is knowing that all information is included in the price. That is, political factors, wars, reports of a company’s profits, private investments in cryptocurrency projects, movements of crypto whales, the social situation of a country that has many crypto investments … All of these factors – both local and global events – have an impact and influence the market price.

Markets have a tendency to follow a trend. This is a natural reoccurring condition without exceptions. Trends can be up, down or sideways. An asset is trending until you prove otherwise. This means that; until the referenced maximum or minimum is not exceeded, the trend of that value continues.

Human behavior is in some ways repetitive, predictable to a certain degree. Under this precept, technical analysis affirms that; unconsciously patterns are created in prices that reflect this behavior. Thanks to this, its study makes it possible to predict future price movements as they are affected by the psychology of the group associated to it.

What do I need to understand the technical analysis of any cryptocurrency?

In order to analyze the market and build a decent cryptocurrency technical analysis, you will have to use a series of elements that will confirm trends as you see them emerge. These tools are usually offered in exchange companies, where people log in to deposit funds, analyze the market, and finally open their orders.

A person holding a black samsung tablet with a trading graph displayed on the screen

Candle Chart

This is the most widely used type of chart to visualize and analyze price movements over time for securities in the market of cryptocurrencies, derivatives, currencies, stocks, bonds, commodities, etc. They are also known as a Japanese candlestick chart, as it originated in that country. Candlestick charts display various pieces of price information such as the open price, the closing price, the highest price, and the lowest price through the use of candlestick-like symbols.

These represent the trading activity compressed for a single period of time (one minute, hour, day, month, etc.). Each candlestick symbol is plotted along a time scale to show trading activity over time, just as we will see quotes and prices on the vertical axis of each chart. Charts are especially useful due to their versatility and their usefulness in detecting and predicting market trends over time.

Charts are often used to make it easier to understand large amounts of data and the relationships between parts of the data. This is very useful in a financial market where information on the value of stocks changes rapidly and the flow of data is constant.

Indicators

Technical indicators are statistical-based tools in order to determine the future behavior of the market. The most important indicators in the crypto market includes the following:

What is a trend indicator?

Indicators are used to detect trends in financial markets. This group of indicators is inefficient for the equilibrium periods (Flat) of the market. Trend indicators indicate the direction of the price movement.

  • Trend: These indicators are used to detect trends in financial markets. This group of indicators is inefficient for the equilibrium periods (Flat) of the market. Trend indicators indicate the direction of the price movement.
  • Volatility: These indicators analyze changes in market prices over a specific period of time. The quicker the change in price, the greater the volatility and, conversely, the slower, the lower the volatility. It can be measured and calculated on the basis of historical prices, as well as identified trends. It also usually indicates whether a market is overbought or oversold (meaning the price is unjustifiably high or low) and can point to a stagnation or reversal of the trend.
  • Volume: these are used to study the volume of a market, enabling us to draw a correlation between the evolution of the volume with changes in the price.

What are the advantages of cryptocurrency technical analysis? 

One of the main advantages of technical analysis is that it gives the trader the ability to identify the signs of the price trends in the market, and thus jump to open trades precisely when conditions are favorable. This is a key factor in any strategy when trading. Thanks to this, investors are able to develop a successful methodology, aimed at locating entry and exit points in the market.

As we mentioned above, the crypto market is very sensitive to fundamental changes, especially when it comes to hacks to exchange platforms or problems related to a large crypto project.

Where to conduct trading? 

You can trade cryptocurrency on any trusted exchange platform, and with confidence we refer to one that has proven its legitimacy and has high volume indices in daily transactions.

In addition, the fact that said platform is regulated or requires KYC procedures also reinforces its credibility. However, once you have successfully registered in crypto exchange you will be able to deposit funds and position your operations in the market based on your technical analysis.

With that said, it’s safe to conclude that cryptocurrency technical analysis is an essential skill to acquire for any aspiring trader. Not only will it broaden your understanding of the trading system, but you’ll also be able to learn how to make more calculated decisions for trading.

For more information, insights and the latest updates on cryptocurrency, explore our articles at Easy Crypto.

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