Using technical analysis, crypto traders and investors can better understand the market sentiment and isolate significant trends. This data can be used to make much wiser decisions. There are many indicators and chart patterns that crypto investors use to conduct crypto technical analysis. As a beginner, you can start learning technical analysis with a few basic indicators.
Technical Analysis vs Fundamental Analysis
Technical analysis is a practical method that weighs past prices of certain coins and their trading volume. Technical analysis is purely focused on the chart and the indicators like RSI, MACD, and candlestick patterns. But there are fundamental factors that have a significant impact on the market (such as gov regulations, news, political cases, etc.) that technical analysis ignores.
When considering entering crypto investing, it is not recommended that you only rely on technical analysis. So the recommendation is to mix together the technical analysis and the fundamentals analysis to make wise investment decisions.
Candlestick Charts
Crypto investors like candlestick charts for their high level of detail. Candlesticks give you an instant snapshot of whether a market’s price movement was positive or negative, and to what degree. You can see how investors are buying and selling crypto during a certain period of time.
The body of the candlestick can appear either green or red. Red indicates that prices ended the day lower than they opened; green indicates that prices ended the day higher.
On green candlesticks, the top indicates the closing price and the bottom the opening price. For red candlesticks, the top indicates the opening price and the bottom the closing price. Unlike stock markets, crypto markets are open 24 hours a day. So the “open” and “close” prices are the prices at the beginning and end of the selected timeframe.
Candlesticks show this information in the form of a bar and two wicks. The peak of the top wick is the high price and the tip of the bottom wick is the low price.
The timeframe represented in a candlestick can vary widely. But many services allow users to set it to be longer or shorter.
Support and Resistance Levels
Experienced crypto investors look at horizontal lines that express support and resistance levels. The terms support and resistance refer to levels where prices tend to bottom or peak, respectively. By identifying the values of these levels, crypto investors can conclude the current supply and demand of the coin.
At a support level, investors believe that the currency is priced low and, therefore, will seek to buy it at that price. The great demand usually stops the decline and sometimes even changes the momentum to an upward trend.
A level of resistance is precisely the opposite. An area where many investors wait patiently with their orders, forming a large supply zone.
This is what it looks like in practice. If prices keep rising above resistance, this might indicate sustained momentum to the upside. On the other hand, if prices continue falling beneath the support, they might continue falling even more.
There are many possible ways to determine support and resistance. Sometimes it could be quite simple.
Relative Strength Index (RSI)
The Relative Strength Index (RSI) is a 'momentum indicator' and looks like a simple line graph. It compares the magnitude of the recent growth to recent downturns to measure the speed and change of price movements. It oscillates between 1 and 100. It is a general belief that RSI should be under 30 for buying and over 70 for selling.
Veteran and novice crypto investors like to use RSI because it seems simple. But in practice, the RSI is best used in conjunction with other indicators.
Average Directional Index (ADX)
The average directional index is a short-term indicator used by crypto investors to determine the strength of a trend. It was developed by Welles Wilder.
The average directional index is based on the idea that trading, when the market is moving in the direction of a strong trend, increases the chances of profit and lowers the risk by a considerable margin. The higher the ADX, the more momentum there might be behind current trends.
ADX is simply the average of the values of directional movement lines over a particular period. These lines are calculated with current low and high prices. Similar to the RSI, ADX can have a value between 0 and 100. But unlike many other indicators, the ADX rarely rises above 60.
A strong trend is present when ADX is above 25 and no trend is present when below 20.
If the ADX is declining, it could indicate that the market is becoming less directional and the current trend is weakening.
If, after staying low for a lengthy time, the ADX rises by 4 or 5 units (for example, from 15 to 20), it may signal to trade the current trend.
Moving Averages (MAs)
Moving averages is another technical analysis tool for crypto currencies and technical analysis to simplify trend recognition. It can be used as a tool to help determine the direction of a trend. A moving average summarizes data points of a cryptocurrency over a set period and divides the total by the number of data points to create an average. For example, a moving average of a given day will be calculated according to the price of the coin for each of the 20 trading days prior to that day. Connecting all moving averages forms a line.
Long-term moving averages are more vital indicators as they contain more data. But Moving Averages can also be tracked in the short term.
There are different types of moving averages, different time lengths for them, and different ways they can be used to provide clues to the direction of a trend.
As you can see technical analysis can be a simple affair for the specialist and complex for a beginner. This is why as a beginner you can use the existing graphs of the crypto exchanges. These graphs provide trend lines and they provide partial indicators. Also, experienced crypto investors and crypto traders recommend starting with Bitcoins.
Do you have any idea where to start?
Many crypto investors have started on EvBlock. EvBlock is a crypto exchange from Switzerland where you can buy bitcoins in just three steps. Here you can find the easy-to-use interface, user-friendly support, Bitcoin chart, and high-security service https://evblock.com/
Topic: Crypto Technical Analysis: Basis for Beginners (Read 33 times)
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