Crypto trading analysis refers to the practice of evaluating current cryptocurrency market volatility and recognizing trends, with an eye for charting digital currency prices and trading volumes.
Crypto traders use various tools to assess market activity, such as trend lines and moving averages. They also examine developer news that could impact prices.
Trend lines
Trend lines on crypto charts are defined as solid lines that connect successive price highs and lows, serving to identify support and resistance levels and generate trading signals that help predict future price movements.
The chart above depicts a trendline for Avalanche (AVAX), a popular layer 1 blockchain cryptocurrency, that served as strong support between August and October of 2020. Avalanche’s price remained near this trendline throughout this time frame indicating its validity.
To create a valid trendline, connect at least two swing tops or bottoms without cutting through candles. Moving averages are also useful tools that smooth price data – the best way to understand their use and gain intuition through practice and repetition.
Candlesticks
Candlestick charts depict an asset’s opening and closing prices within a set time period – such as one minute, an hour, or any other designated amount of time – with its body representing open/close prices while its “wicks” connect the two prices; candlesticks can provide useful insights into market sentiment but should always be combined with other indicators to create more robust projections.
One of the more frequent candlestick patterns is an inverted hammer, which typically forms at the end of a downtrend and indicates that buyers might soon take control. It is similar to the doji pattern which also suggests an end to such trends.
Moving averages
Moving averages are one of the key indicators in trading. They’re flexible and adaptable, suitable for use across all time frames. Moving averages provide traders with a good indicator for trend direction as well as help make more informed decisions and identify oversold and overbought levels.
Stock traders in traditional markets keep close tabs on 50, 100, and 200-day moving averages (MAs), watching any significant movements above them as a bullish sign if followed by a crossover event.
Traders may utilize either simple or exponential moving averages when it comes to monitoring price fluctuations. Both types analyze this data; however, an exponential moving average (EMA) places greater weight on recent information which allows it to more quickly react to sudden market shifts than its simple counterpart. MAs must still be combined with other tools for maximum effectiveness.
Volume
Volume is an indispensable metric for crypto traders, showing how frequently an asset is traded at any given moment. Volume can help traders gauge liquidity, market trends and reversals; but it’s essential that other indicators also be utilized.
Volume is another useful way of distinguishing genuine breakouts from fakeouts. If a price move coincides with increasing volume, this suggests it may be genuine; conversely if prices continue to move but volume remains static or decreases suddenly it could indicate an attempted fakeout.
There are various indicators available to measure crypto trading volume, including On Balance Volume (OBV), Accumulation/Distribution Line, Chaikin Money Flow and Money Flow Index. All of these tools can help make more informed trading decisions.
Stock-to-flow
Stock-to-flow models measure scarcity by comparing an existing resource’s existing stock to its new production rate, such as precious metals or commodities. This ratio can also help evaluate assets such as real estate. Furthermore, stock-to-flow models reduce speculative bubble risks while providing reliable indicators of value.
Crypto trading volume is an invaluable barometer of price movements, market trends, and potential reversals. But to get an accurate picture of this market and its potential, other indicators may also need to be utilized; also important is understanding a cryptocurrency’s accumulation trend which can have an effect on its worth.
Plan B is a pseudonymous former institutional investor from the Netherlands who popularized the Bitcoin stock-to-flow model, which suggests that crypto prices increase as their scarcity does; regardless of demand. Unfortunately, however, the model has its limitations.
