Crypto trading can be intimidating for new investors. It’s easy to become lost in technical jargon, but learning how to read a cryptocurrency chart and conduct analysis will give you an edge against competitors.
Technical analysis uses past price movements as indicators to predict future price movements, providing cryptocurrency traders with valuable tools for spotting investment opportunities and making sound financial decisions.
Basics
There is an impressive array of tools, indicators, and chart patterns traders can utilize when conducting crypto technical analysis. Entire books and courses have been dedicated to this topic. But traders should keep in mind that crypto technical analysis should not be seen as a magic bullet; rather it should complement other forms of research for optimal results.
Crypto trading analysis follows the basic premise that market trends will recur and you can use historical price data to predict market sentiment and identify profitable trade opportunities. Typically this method of research is known as technical analysis; however, many traders also employ fundamental and on-chain analyses when making investments and trading decisions in cryptocurrency space.
Start by collecting historical price data for the coin you wish to analyze; this can be found both on your trading exchange and price-tracking websites.
Charts
Cryptocurrency market trends can be examined using various means, but charts and indicators are the go-to tools for traders analyzing cryptocurrency market movements. These visualizations provide extra data that helps traders make informed decisions regarding their investments – candlestick patterns and price channels being particularly useful charting tools.
Some patterns, like the “bullish hammer”, serve as trend reversal indicators; others, like the “bearish head and shoulders”, indicate when prices may begin their descent. Candlestick wicks are useful tools in monitoring how buyers and sellers interact in an active marketplace.
Order book volume (OBV) can also provide useful insights into cryptocurrency prices. This cumulative indicator rises and falls with prices, with increasing OBV showing increased asset demand. Used together with moving average convergence divergence (MACD), OBV can help identify buy and sell signals; however, don’t rely solely on OBV data when making decisions – always seek confirmation elsewhere!
Indicators
Indicators are tools that enable traders to efficiently organize data and identify patterns which might impact cryptocurrency price movements. Used alongside candlestick charts, these indicators enable more data-driven trading decisions rather than guesswork.
Cryptocurrency trading can be highly unpredictable and treacherous; using indicators can help traders stay calm when making trades. While indicators cannot predict all market trends and reversals, so traders should use them with care alongside fundamental analysis.
Technical indicators allow traders to quickly identify support and resistance levels in markets they’re studying, as well as predict areas in which trends could reverse or consolidate. A Fibonacci retracement tool can be particularly helpful for this task, drawing horizontal lines at specific ratios to identify key support/resistance zones. Furthermore, an RSI indicator measures currency price momentum to detect whether it has become overbought or oversold.
Trading strategies
Finding a successful cryptocurrency trading strategy depends on your investment goals and skill level, with options ranging from scalping in 1-minute time frames up to day trading or long-term position investing.
At its core, cryptocurrency trading analysis involves using charts and indicators. This may involve looking for patterns like triangles, wedges, head and shoulders and double tops on charts; as well as looking for support and resistance levels – such as drawing a trendline connecting two of a cryptocurrency’s lowest lows over an extended timeframe and touching this line is seen as support.
Fibonacci retracement is another well-used technique to identify market support and resistance levels, using mathematical indicators like 23.6%, 38.2%, 50%, 61.8%, 100% to predict future price trends. Finally, global economic shifts must also be considered when considering how they might impact crypto prices; often unexpected events can have significant ramifications on how these assets behave over time.
