Crypto technical analysis leverages existing real-world data and attempts to predict where markets will move next based on patterns that frequently recur in markets.
Numerous tools and indicators are available to aid crypto technical analysis. One popular choice is the trend line, created by connecting several price points.
Candlesticks
Crypto traders rely on candlestick analysis as a form of technical analysis to forecast future price movements. Candlesticks help traders assess market sentiment and make decisions that can lead to profits; additionally, candlesticks help identify trends and confirm buy/sell signals generated from other forms of analysis.
Candlestick charts display time on the horizontal axis and price data on the vertical, similar to more familiar line or bar graphs; however, candlesticks provide additional data than simple line graphs do.
The wide part of a candlestick known as its real body represents fixed open and close prices over a given timeframe, while its thin lines, known as wicks, provide more information on buyer-seller relations.
Moving averages
Moving averages can be used to identify trends in the cryptocurrency market. They help smooth out volatile price movements while highlighting underlying trends, while they may act as dynamic support/resistance levels as well. It is important to keep in mind that due to their lagging nature they should not be used as standalone trading indicators.
Some traders prefer exponential moving averages (EMA) over simple moving averages (SMA), as the EMA gives greater weight to recent data and can change direction more rapidly than the SMA.
Many crypto traders rely on moving averages to identify trends and make more informed trading decisions. They typically look out for when the short-term moving average crosses above its long-term moving average, known as a “golden cross.” This signal shows an upward trend, suggesting more buyers than sellers in the market.
RSI
RSI is one of the most frequently employed indicators in crypto technical analysis. As a momentum indicator, it uses two simple calculations to track comparative gains and losses across an asset’s lifecycle, producing an index reading between 0-100. Common wisdom holds that when an asset reaches 70 or above on this index it has likely overbought itself and needs a correction; conversely an asset below 30 could signal overselling or an opportunity for rallying.
The Relative Strength Index (RSI) measures market momentum by tracking price gains and losses over a specified timeframe (usually 14 days). Unfortunately, its limitations include its dependence on price changes alone, which may be misleading when markets are extremely volatile; moreover it cannot measure fundamental conditions or events, like poor earnings reports that can cause prices to decrease.
ADX
The average directional index (ADX) is an indicator that can help gauge the strength of a trend. To calculate it, combine positive and negative directional indicators and smooth them over a period. Fourteen is usually sufficient. Most trading software will automatically calculate these figures.
ADX is the result of the combination of +DI and -DI indicators from Directional Movement Indicators. Each +DI and -DI measures the difference between two consecutive highs or lows, while ADX represents their smoothed average value.
An increasing ADX line signals strong trends while its decline suggests weakening ones – although this doesn’t guarantee price reversals; rather it could simply indicate correction or periods of volatility.
Trend lines
Trend lines provide an easy and straightforward method for identifying support and resistance levels on crypto charts. Drawn using cryptocurrency’s lowest or second-lowest lows, any levels touching this line represent support. They may also be used to pinpoint sloped areas of resistance or support.
Rising price movements tend to coincide with upward trend lines while falling prices often coincide with downward ones. Furthermore, traders can use OBV indicators that focus on trading volumes to better understand price movements and trends.
Traders use trend lines as part of an arsenal of chart patterns, such as channels, wedges and flags. The more often price action tests a trend line against its limits, the stronger it is generally considered to be.
