Crypto trading analysis involves studying an asset’s price and volume movements to spot emerging market trends. There are three primary forms of analysis used in cryptocurrency trading: fundamental, technical and on-chain.
On-chain cryptocurrency analysis utilizes public blockchain data to gain insight into market behavior. Traders can utilize this information for indicators like wallet balances, coin dormancy and transaction values.
On-Balance Volume Indicator
Many market indicators produce reliable signals, yet often don’t provide insight into what lies ahead. That is why traders rely on on-balance volume indicators as leading indicators as it helps predict where prices are heading. It is wise to combine this leading indicator with other predictive tools such as moving averages or relative strength index for maximum effectiveness.
This indicator measures buying and selling pressure by adding the cumulative volume of up days to price movements for a security, then subtracting cumulative volume of down days. This approach is similar to an accumulation/distribution line as both take into account accumulative volume.
The momentum of an indicator typically follows the direction of price movement, making it an effective tool for identifying crypto trading trends and anticipating price reversals. However, spikes in volume can temporarily alter this indicator due to institutional block trades or other reasons.
Fibonacci Pivot Points
Pivot points are predictive (or leading) indicators used by traders to anticipate levels of support and resistance that traders can use as entry and exit points for trades. You can find pivot points in chart patterns, indicator signals, as well as historical price action. They are calculated after markets close for the day but before opening for new trading the following morning using previous high, low, and closing prices to come up with this number.
There are different versions of pivot points, including Standard and Fibonacci Pivot Points. The latter is an extension of the former that considers ratios found within the Fibonacci sequence; specifically 38.2%, 50% and 61.8% retracement levels which appear significant within financial markets due to price movements gravitating toward these levels naturally. Traders use these indicators as educated forecasts about market future directions with increased accuracy when combined with other trend indicators.
Trend Lines
Crypto trading can be highly unpredictable, with traders constantly looking for ways to maximize profits while limiting risks. One important tool used by traders to maximize profits while limiting risks is technical analysis – an approach which describes past price movements and extrapolates them into future market movements so traders can more accurately predict market movements and make profitable trades.
One of the most frequently employed technical analysis techniques is trend lines. These lines connect two or more swing tops and bottoms on a chart and indicate its direction – ascending trend lines denote an uptrend while descending ones indicate one.
Understanding that news can quickly disprove any analysis you’ve conducted is vital, so keeping abreast of all developments within the crypto industry is vital to remaining up-to-date with what’s going on. Should an event occur which alters market sentiment significantly, all technical analysis you conducted could become obsolete overnight.
Support & Resistance Levels
Support and resistance levels are an integral component of successful crypto trading, serving as key price points where significant buying or selling pressure may emerge – which could temporarily stop or change an ongoing trend.
These price levels are determined through both psychological and technical analysis. For instance, price levels that have been in a prolonged trough often become significant support points as buyers recognize value in an asset but sellers refuse to sell at lower prices.
As with anything, the more often a price level has served as either a trough or resistance point, the stronger that level becomes. However, it should be remembered that these levels can be broken if significant supply/demand changes take place; so depending solely on them may lead to impulse trades which result in losses.
