Mian Asad 
Introduction
With the surge in popularity and value, the cryptocurrency market poses a daunting challenge to many traders, particularly newbies. Knowing how to do technical analysis (TA) is essential for those who seek to trade based on price charts and other historical data. This article will serve as a primer, teaching you a few skills that can help you efficiently identify and analyze the price movements in cryptocurrencies.
What Is Technical Analysis?
In simplest terms, technical analysis is a trading approach that uses price chart patterns and trading volumes to anticipate future price movements. As its name calls for, fundamental analysis looks more at the asset’s data and intrinsic value, and therefore, is more complex than technical analysis which doesn’t stray from market trends and data.
Why Use Technical Analysis in Crypto Trading?
- Predict Price Movements: By recognizing certain patterns, traders can forecast a number of price movements.
- Set Entry and Exit Points: Eases the process of defining the market’s buy or sell signals.
- Risk Management: Provides aid in determining stop-loss and take-profit levels.
- Market Psychology: Provides an insight into what the trader’s sentiment and actions are.
Key Components of A Crypto Chart
Before proceeding to the technical indicators, here are the basic parts of a crypto chart you should first know:
- Price Action: A cryptocurrency‘s price history at a specific period.
- Candlestick Charts: Used to illustrate price movements over a selected period of time.
- Volume: The traded assets’ figures indicating the movement’s strength.
- Time Frames: Different periods such as minutes, hours, or days to evaluate patterns.
- Trend Lines: Straight lines on a graph that serve for estimating the general movement trends of prices.
Understanding Candlestick Patterns
During a trade, it’s important to know how to read and understand bitcoin candlestick patterns properly. Here are some essential patterns that traders need to know:
Bullish Patterns
- Hammer: Signaling a reversal, a small candle below with a long wick below.
- Bullish Engulfing: A green candle larger than the preceding red candle, shows strong bullish momentum.
- Morning Star: Suggests an upward reversal sequence of three candles after a downtrend.
- Bearish Patterns
- Shooting Star: A small body appearing in an uptrend with a long wick shows possible trend reversal.
- Bearish Engulfing: A strong red candle following a weaker green candle with lower volume. Shows strong bearish movement.
- Evening Star: This three-candle pattern indicates a downward reversal after a preceding uptrend.
Key Technical Indicators
- Moving Averages (MA)
Simple Moving Average (SMA): Total value of price over a certain period divided by set number of periods.
Exponential Moving Average (EMA): Considers the newer price more and is quicker to respond to current price changes.
- Relative Strength Index (RSI)
Evaluates the speed of price changes and conditions of overbuying or overselling.
- RSI goes beyond 70: Sign of overbuying (can indicate sell).
- RSI is less than 30: Suggests overselling (can indicate buy).
- Moving Average Convergence Divergence (MACD)
- MACD comprises three important parts: the MACD line, signal line, and its histogram.
- In the case of a bullish MACD histogram, the two lines cross in a bullish manner.
- A bearish crossover is illustrated by a negative MACD histogram.
- Bollinger Bands
Composed of the middle moving average and the upper and lower bands which are standard deviations away from the mean price.
- Touching the upper band indicates that something is overbought.
- Touching the lower band indicates that something is oversold.
- Fibonacci Retracement
Commonly used in technical analysis to aid in identifying potential levels of support and resistance.
- More common ratios are; 23.6%, 38.2%, 50%, and 61.8%.
- Support and Resistance Levels
- Support: A price level where the downward trend of an asset’s price can be halted by increased demand.
- Resistance: A price level at which selling an asset will place so much supply that the price increase will cease.
Chart Patterns for Trading Strategies
- Head and Shoulders
This pattern mostly indicates a change in a bullish trend into a bearish trend.
- Double Top and Double Bottom
Double Top: A pattern that indicates a market is reversing from a bullish to a bearish trend.
Double Bottom: A price pattern that signals the bullish reversal trend.
- Triangles (Ascending, Descending, Symmetrical)
- Ascending Triangle: A breakout pattern that is most frequently cited as a bullish indicator.
- Descending Triangle: A breakout pattern that some traders believe are oriented towards a bear market.
- Symmetrical Triangle: A continuation pattern in which the price moves into a triangle forming lower highs and higher lows.
- Using A Combination of Technical Indicators Improves Accuracy
- Multiple indicators can be combined for an improved accuracy calculation:
- MACD + RSI: Recognizing trend movement in both direction and strength.
- Bollinger Bands + RSI: Confirmation of overbought and oversold situations.
- Fibonacci + Support/Resistance: Possible areas for price changes.
- Overused Parts of Technical Analysis
- Ignoring Market Sentiment: There should be more attention paid to the economic foundations of the indicator.
- Overcomplicating Charts: Cluttered charts with a plethora of indicators make accurate analysis impossible.
- Not Setting Stop-Loss Orders: A trader’s most basic and essential means to protect capital.
- Chasing Trends Without Confirmation: Do not enter into a position without confirmation first.
Final Thoughts
Techniques that are used for technical analysis have to be learned. But, once mastered the strategies, signs, and market psychology that serve as indicators will further enhance one’s decisions. You will always need to improve your techniques and methods whether you are just starting or oddly enough, have years of experience. Doing so will give all kinds of traders advantages in the crypto market.
Begin with demo accounts, try to follow the historical prices and understand the how market news and trends impact them. It won’t take long before plenty of knowledge is gained in the field of crypto charting and tech analysis.
