When reading cryptocurrency charts, many newbie investors don’t understand half of the suggested tools or indicators. At the same time, this is a vital part of making the right price prediction, defining an entering and exit strategy, and buying or selling assets.
The key to understanding crypto dynamics and market behaviour is learning the theory – such as technical analysis. It describes all the tools that are required for trading.
With this base, any investor will be able to grasp more advanced methods and concepts of successful crypto trading.
The Basics of Technical Analysis
The founder of technical analysis was Charles Dow – or at least; he was someone who made a significant input into the growth of this concept. Before we start, we will define three main suggestions on which the analysis is based.
- The Price holds the essential information about the asset.
- There are three market directions – a primary trend, a secondary trend, and a tertiary trend.
- History repeats itself in market movements.
Those assumptions are argued and, in general, have lived through a series of changes, yet they remain a foundation for decision-making in crypto trading.
Technical Analysis Tools and Indicators
There are some definitions that any trader should know. They are so frequently used that it’s almost impossible to escape colliding with them. So, here’s a list of the basic tools and indicators in technical analysis.
This way of reflecting price movements over a period of time is immensely popular: it has all the information a trader needs, and it makes sense in any time frame. Rumoured to come from 18th-century Japan, this used to be a rice measurement tool.
Today, candlesticks consist of a body and a wick, and they are coloured green when the prices are up or red when the prices are down.
Sooner or later, any investor starts wondering how to draw trend lines. These lines are widely used in any chart patterns and define support and resistance levels. They are usually drawn across three or more points.
Support and Resistance
Those two levels are the frames for the price, and they can be referred to as supply and demand. The price can’t go higher than a resistance level, as it can’t go lower than the support level.
The moving average tracks the price based on the past price in a certain period.
Meet the two types: the simple moving average is responsible for the average of total prices, and the exponential moving average shows recent prices without looking at the past.
Relative Strength Index (RSI)
This oscillator is one of the best ways to determine whether an asset is reaching overbought or oversold conditions. When using RSI, there will be no problem with buy or sell questions.
The Fibonacci retracement is a common term in crypto charts. It is considered to be very accurate – up to 70% of its predictions tend to be correct. It shows when it’s better to exit or when to place orders.
Technical Analysis: Conclusion
As you can see, crypto trading has its theory book, such as technical analysis. Learning these tools and indicators is essential as you will come across them often. These trading helpers will provide you with an essential asset – information. Based on facts, you will be able to make more accurate forecasts.
Though it’s never a mathematical equation with a guaranteed result, it’s a working scheme for understanding the market.
It is highly advisable to learn both technical and fundamental analysis – as both methods have their pros and cons. Still, technical analysis will give you quick answers when you are taking your first steps in crypto trading.