Cryptocurrencies can be highly unpredictable and trading decisions can often be hard to make in this environment, which is why using every tool available – including cryptocurrency technical analysis – to you is necessary for success.
Candlestick charts demonstrate the highest and lowest price points within any timeframe chosen by you – be it 10 minutes, 12 hours, a day or week – as well as showing buyers and sellers in battle. Furthermore, their wicks depict buyers and sellers engaging with one another.
Technical analysis
Technical analysis is a trading strategy that draws upon past price data and chart patterns to predict future market movements. It has long been used in crypto trading markets and often in combination with fundamental analysis.
Technical analysis (TA) works on the principle that past trends can help predict future ones; learning to recognize price movements accurately will allow investors to make better investment decisions. Common tools used in TA include technical indicators, trend lines and support and resistance levels.
Some traders use candlestick pattern recognition to help identify potential entry and exit points for trades. A candlestick’s body displays open, high, low, close prices for any given timeframe while its wicks show any up or down peaks and troughs in price movements; technical indicators use historical data analysis to offer insights into market trends or possible price movements; they include moving averages, relative strength indexes, Fibonacci retracement levels etc.
Fundamental analysis
Cryptocurrency prices can be extremely volatile, necessitating an in-depth knowledge of market trends to navigate them successfully. Fundamental analysis can be an effective means of doing this; both newcomers to investing and experienced traders alike can use fundamental analysis to craft profitable trading strategies with greater odds of profitability.
Trend lines are one of the clearest indicators of cryptocurrency trends, drawn by connecting various high and low price points within an allotted timeframe. They serve as powerful tools in identifying support/resistance zones as well as potential directional breakouts.
Usability and adoption are also vital aspects of fundamental analysis for any cryptocurrency token, with growing user communities often signaling positive prospects, while wider acceptance can help overcome a unit price bias. Traders should keep an eye out for maximum supply/circulating supply as these factors could influence demand, along with any regulatory developments which might have an effect on Bitcoin prices.
On-chain analysis
Cryptocurrency transactions are recorded on a blockchain, making them easily viewable by anyone who wishes to see. On-chain analysis uses this information to detect trends and opportunities within the market.
An indicator for traders can be the amount of coins moving between exchange wallets. This reveals whether people are holding onto or selling off their tokens; an increase in this trend could push down prices further.
Cointime destroyed is another metric calculated by multiplying the total coins transacted during a specific time period by their holding time on the blockchain. An increase in this metric may suggest that holders are moving their holdings back onto exchanges or liquidating them open market, which may cause prices to adjust accordingly. While tracking individual addresses could prove challenging and time consuming, tools like Arkham can easily access and organize this data for you.
Do your own research
Crypto trading can be fast-paced, with wild price swings. But as more traders enter the market, patterns are emerging, with traders employing techniques such as technical analysis to predict price movements and make informed decisions.
On-chain research can also be an invaluable technique. This involves reviewing a project’s whitepaper and website to understand their goals and values, and speaking to people in the space who possess unbiassed knowledge such as journalists, influencers or investors such as Elon Musk.
“Do your own research” may sound like a hollow platitude in the cryptocurrency space, but conducting thorough research can actually help traders avoid making irrational decisions that lead to losing out due to hype or FOMO; or worse still getting trapped into pump and dump schemes or investing in questionable projects.
