Cryptocurrency market trends can be evaluated in various ways. Some analysis methods utilize chart patterns and indicators to predict price movements while other use mathematical calculations to analyze statistical trends and forecast future market behaviour.
Candlesticks provide additional information when plotted on a chart. Their bodies depict fixed open and close prices over time while their wicks show any up or downtrends in prices or volumes.
Price Action
Price action is one of the cornerstone concepts in any trading strategy, used to identify entry and exit points of trades to take a profit or reduce losses. Price action also forms the basis for technical analysis in forex, stocks and cryptocurrency trading markets.
For instance, if the price of a cryptocurrency has been steadily increasing and is about to embark on a decline, shorting may be used as a form of market manipulation that violates most regulatory markets yet remains prevalent within cryptospace. This action constitutes illegal market manipulation – though still common within cryptocurrency ecosystems.
Given its recent birth, the crypto market hasn’t had enough time for traders to develop statistical models and backtest strategies based on historical data. Still, traders can expect it to exhibit certain market characteristics found in more established markets that will enable them to employ trading analysis techniques they are familiar with from these other markets.
Candlesticks
Candlesticks are one of the most powerful tools for analyzing markets and forecasting trends. Based on charts which display open and closing prices of an asset over a specified time, candlesticks provide traders with insights into potential support or resistance levels in the form of charts that display open/closing prices over a given period of time. They come in various forms including the doji, hammer, hanging man, shooting star patterns.
Crypto candlesticks represent the difference in price between an asset’s opening and closing price over a specified time frame, while thin lines above and below its body – known as “wicks” – indicate its high and low points during that observation period.
An extended upper wick indicates that buyers were unable to outweigh sellers, so the price declined. Conversely, an extended lower wick indicates sellers’ control of price and push it downward. A long upper or lower wick could also signal that a triangle pattern is taking shape.
Trend Lines
Trend lines are one of the essential tools of technical analysis used in crypto trading, connecting candlestick highs and lows by drawing lines over charts to suggest price levels an asset must respect in order to progress in a desired direction.
A trader may combine multiple trend lines into a channel, and when this channel is breached this can serve as a trigger to buy or sell. A more advanced tool for identifying trends is the directional movement indicator (DI), which subtracts previous highs from current ones (+DI) or subtracts previous lows from current ones (-DI).
Technical analysis will become irrelevant when news stories impacting the market arise, so traders must stay up-to-date with all pertinent headlines that could impact trading decisions. Knowing how to read crypto charts is vital for traders as it allows them to anticipate market turmoil and find optimal entry points in volatile environments.
Previous Patterns
Crypto trading analysis employs patterns seen on charts to predict future market activity and prices. This technique is an integral component of technical analysis – used by traders and investors alike for making informed trading decisions.
Although crypto market fundamentals are of the utmost importance, knowing when and how to recognize chart patterns is equally essential in improving profitability and mitigating cryptocurrency’s notorious volatility. Recognizing these patterns helps you know when buying or selling cryptocurrency will yield higher profits with reduced risks.
Crypto traders can look back to past patterns that were successful to assess whether or not their current trend will continue. If a pattern fails to break a support line repeatedly, this could signal that an upward trend has changed direction and reversed. Candlestick wicks can also provide helpful insight by showing when market peaks occur during timeframes.
