Crypto technical analysis is used to predict future trends using mathematical indicators, and this is based on previous price action data. The main idea is that the market works as per the established patterns, and trends moving in a specific direction often continue for some time.
When markets are low, investors always want to buy so they can sell at a high price in the future and make a profit. Identifying price levels that are considered low can be done by conducting a technical analysis.
For crypto technical analysis, there is no single method. Every investor uses different indicators and interprets them differently. No technical analysis is 100% percent predictive.
Basics of Crypto Technical Analysis
There are several technical indicators available that can conduct crypto technical analysis. This is a vast topic, and many books have been written about it. Let us discuss some technical indicators that are used for learning technical analysis.
Support and Resistance Levels
The name refers to a level where prices fluctuate to the bottom or peak. For making informed trading decisions, traders may identify these levels. There are two ways of determining support and resistance. It can be easy to look at a chart and know where prices have repeatedly pulled back (resistance case) or bottomed out (support case).
Once they are identified, traders can use these price levels to inform trading strategies. There are many distinct ways to use support and resistance, as these levels can be used to predict price reversals or indicate the emergence of new trends if prices continue beyond them. Sustained momentum to the upside is indicated if prices keep rising above resistance, and if prices continue falling beyond support, they may continue falling more.
Traders often prefer candlestick charts as they provide a high level of detail. It displays four different price levels for every interval rather than condensing data in a single point for every time interval.
• High price
• Opening price
• Closing price
• Low price
Candlestick displays this information in the form of two wicks and a bar. The peak of the top wick indicates the high price, and the low price is the tip of the bottom wick. The candlestick body can be red or green. Red means prices are lower at the end of the day than they opened, while green indicates higher prices ended.
The top on green candlesticks showcase the closing price, and the bottom indicates the opening price. For red candlesticks, the bottom means the closing price, and the top shows the opening price. Every candlestick is read, taking surrounding data points into context and providing a detailed look at how investors buy and sell Crypto during a specific time.
Average Directional Index (ADX)
This is a short-term indicator that helps investors to know how strong a trend is. There might be more momentum behind current trends when the ADX is high. It is an average of the values of directional movement lines over a certain period. The calculation is done with current high and low prices. It can have a value between 0 and 100.
Unlike other technical indicators, ADX rarely rises above 60. ADX above 25 can indicate trend strength, and below 20 means no trend. No trend or neutral is considered between 20 and 25. The rise of ADX means the current trend is strongly growing.
Relative Strength Index (RSI)
It is popular among novice and experienced traders. This is like a simple line graph below a price chart. The line moves between 0 and 100, where 50 is neutral. A higher value shows overbought conditions, whereas a lower value indicates oversold conditions. RSI can be used with other indicators like other technical analysis tools.
Cup and Handle Pattern
This is a popular bullish setup. It has a price chart over which the bottom half of a circle and a 45 degree downward slanting line can be drawn. For this, the prices must generally fall, rise for the same time as they fell originally and have a steep yet brief drop. The final drop creates the handle when the pattern is confirmed, and prices can rise. Prices can fall if the inverse of this pattern happens.
As the name suggests, Trend Lines illustrate potential trends. They can take several forms, and multiple trend lines can sometimes be drawn on the same chart to show more complex patterns. We can say that trend lines connect different low or high points via single lines. The trend is stronger as more points connect on the same line. Trend lines can show varieties of crypto technical analysis setups.
Moving Averages (MA)
Moving Averages can help determine the trend direction. It summarizes data points of a cryptocurrency over a set period and divides the total data points for creating an average. The moving term is used to update the number constantly using the latest price data.
More data is present in long-term moving averages, and thus they are strong indicators. MAs can be tracked in the short term. There are several types of moving averages, and they can provide clues to the trend direction. Golden Cross is one popular bullish setup based on MAs. This takes place when short-term MA moves above long-term MA.
Before investing in Crypto, investors want to about Crypto technical analysis along with many other things. Cryptocurrency technical analysis can be subjective, and indicators are mathematically based. It must be kept in mind that no technical indicator is perfect. Moreover, when several indicators predict the same conclusion, prices can still react differently than expected. The good thing is that an investor can decide with an increased chance of profit according to the information available.