Cryptocurrency traders and investors rely on various analyses methods to predict price movements, including fundamental, technical and on-chain analyses. All three approaches utilize past market data to spot patterns which seem to repeat themselves.
Technical analysis is founded on the assumption that an asset’s price reflects both its true value and market sentiment, using charting tools to identify both primary trends and any possible trend reversals.
Cryptocurrency exchanges
Cryptocurrency exchanges are platforms that enable the trading of digital currencies like Bitcoin and Ethereum, providing liquidity by matching buyers with sellers. Exchanges may be either centralized or decentralized and offer various trading pairs; some jurisdictions even regulate them according to Know Your Client (KYC) and Anti-Money Laundering (AML) laws.
Centralized cryptocurrency exchanges (CEXs), like traditional stock exchanges, earn money through transaction fees. CEXs usually feature an order book or market that traders can access to find the optimal price when buying or selling digital assets.
Select a cryptocurrency exchange that practices best security and transparency practices, such as publishing proof-of-reserve audits. Furthermore, look for an exchange that offers insurance policies – this could protect you if the exchange becomes compromised and causes you to lose coins.
Cryptocurrency tools
Cryptocurrency tools are products or services designed to ease a trader’s investment process. They reduce time and stress associated with creating an investment portfolio while aiding analysis and research efforts. While cryptocurrency tools are helpful, traders must remain focused on their research process while objectively considering all factors when formulating an investment thesis.
Many crypto trading tools feature support and resistance levels, trend lines, blockchain analytics, price alerts, new exchange listings and social metrics as market data sources. Unfortunately, however, these tools cannot detect market manipulation such as wash trading.
Automated crypto tools provide traders with an ease of use that enables them to set predetermined conditions and have positions executed automatically, as well as copy strategies of experienced traders. Dash 2 Trade offers an array of trading tools including technical analysis and on-chain data analytics for example.
Indicators
Crypto trading indicators use past market trends and price patterns to predict future ones, providing valuable clues as to market direction; however, they’re not infallible; your choice of indicators depends on the trading strategy you employ – scalping, day trading or swing trading could all have different options available to them.
Simple Moving Average (SMA) and Exponential Moving Average (EMA) are reliable indicators of cryptocurrency trend changes, where each index aggregates recent price closeouts while the latter utilizes more historical information to filter out short-term fluctuations that might skew your analysis. Bollinger bands provide another useful cryptocurrency indicator, consisting of an upper band that’s two standard deviations away from an SMA as well as lower bands separated by two standard deviations away.
Other popular crypto trading indicators include volume profile charts and the Stochastic Oscillator, which can be applied across various time frames from minutes to weeks. Recognizing support and resistance levels on charts will allow you to make better-informed trading decisions.
Trend lines
Trend lines are one of the clearest indicators for identifying trends in crypto charts, helping traders identify support and resistance levels. To draw one, simply connect all the highs and lows on a chart; more data points connected will create stronger lines. However, as with all indicators, using trend lines alone does not ensure accurate prediction or eliminate false signals.
As an example, an uptrend line can be drawn by connecting two key lows to see if prices have been steadily climbing; any time prices break through this line it could signal a potential reversal in trend. Conversely, drawing downtrend lines between meaningful highs can help you to identify whether markets are selling off. By studying trend lines closely you can make informed decisions and optimize your trading strategy; to optimize results practice drawing trend lines alongside indicators like RSI and MACD for optimal results.
