Index of contents:

  • What is cryptocurrency technical analysis?

    • Japanese candlestick chart

    • Understanding trend lines

    • Indicators

    • Graphic Patterns

    • Supports and Resistances

    • Supply and Demand Zones

  • CONCLUSION

When investing or trading in cryptocurrencies, it is necessary to have methods that can accompany our decisions. Technical analysis is one of the methods and is based on the idea that all current market information is reflected in the price.

In this article we are going to explain what technical analysis is and the main tools used to trade cryptocurrencies.

What is cryptocurrency technical analysis?

Technical analysis is the study of a set of historical data on the evolution of the price of an asset, in this case a cryptocurrency.

The main objective of technical analysis is not to try to “guess” whether the price will go up or down, but rather to identify patterns and determine probabilities about future price movements using technical analysis tools such as candlestick charts or indicators.

This allows a trader to make an informed decision with a “certain level of advantage” since they know in advance in which situations and areas the price is most likely to act in a specific way.

Chart analysis platforms are used to perform technical analysis. These platforms are where you can technically analyze a cryptocurrency, using a wide variety of tools.

An example is the TradingView graphics platform, one of the most used and known worldwide.

To perform a technical analysis, you must have knowledge in the use of technical tools such as indicators, as well as know and identify Japanese candlestick patterns, location of support/resistance or supply/demand zones, to mention some of the most important ones.

Japanese candlestick chart

The development of the historical price movement of a cryptocurrency can be represented in several ways, through bars, lines and with Japanese candles. Japanese candlestick charts are the most used because of their ease of reading and the information they provide.

The Japanese candles themselves provide us with detailed information in a specific period of time on these 4 parameters:

  • Opening price.

  • Maximum price reached.

  • Minimum price reached.

  • Closing price.

One of the main uses of this information is that the trader will be able to detect the small and large scale behavior of the price movement.

That is, the candles provide us with a type of information individually or by combining several of them.

On the other hand, we will have a much more general view when we zoom out and look at the entire graph as a whole. In this way we can determine trends (bullish or bearish) or observe if the price moves sideways.

Understanding trend lines

Trends are a fundamental part when trading in Bitcoin, Ethereum or any cryptocurrency since the market moves in very marked cycles.

Holdings are represented on charts and are nothing more than the dominant pattern that the price develops on any time scale. It will be bullish if the price increases gradually over time and bearish if the opposite happens, falling steadily.

In the following example, we can see Bitcoin (BTC) in a prolonged uptrend until the trendline is broken.

Using trend lines allows you to very visually draw bullish, bearish or sideways trends on charts and draw them.

Indicators

Technical indicators are basically formulas or mathematical calculations that are applied to the price chart of a cryptocurrency in order to obtain deeper and more detailed information.

When the trader uses the indicators correctly, they are increasing the reliability of their analysis, therefore, their decision making will be more appropriate for their strategy.

There is a wide variety of Cryptocurrency indicators available, all of them with different characteristics and with a specific utility.

Traders decide which indicator to use based on their strategy, knowledge and the market in which they operate. In the case of cryptocurrencies, we are going to talk about two that are very useful and provide us with basic information in a simple way.

Moving Averages

  • One of the most used are moving averages, due to their simplicity and valuable information they provide.

  • Moving averages are a line that tells you the average price of the crypto asset over a given period of time.

  • This is very useful because by having a line with the average price you eliminate the “noise” caused by volatility, and in cryptocurrencies it is very high.

  • Another benefit is that they tell you what the dominant trend is and price areas of interest to traders.

  • Some of the most used moving averages in trading are those of 20,50 and 200 periods.

  • In the following example we see the Simple Moving Average of 200 periods on the ADA (Cardano) chart. Since its upward break, it repeatedly acts as support, in addition to indicating that we are in a long-term bullish trend.

Volume

  • Another very useful one is volume, which indicates the amount of cryptocurrencies that are traded in a given period of time.

  • Knowing that amount allows the trader to know what demand a cryptocurrency has, because the greater the volume of operations, the greater the interest.

  • In addition to that, with volume they can anticipate changes in price trends, because when traders become interested in a cryptocurrency it is reflected in the increase in its volume.

  • These are just two of the most used indicators. There is no indicator better than another nor is any one 100% infallible.

The reliability of technical analysis will always depend on the way in which it is applied and the strategy as a whole.

Graphic Patterns

They are figures that the price forms on its graph, being recognizable by joining points in the price using straight lines.

Identifying patterns is a very useful skill for traders, as being able to recognize patterns indicates where the potential entry or exit points of a trade are and what direction the price is most likely to take.

There are several graphic patterns, but this time we will talk about the most common ones:

  • Triangles.

  • Pennants.

  • Shoulder-Head-Shoulder

Triangles

It is one of the most traded chart patterns due to its simplicity.

Triangles are areas where the price moves within a smaller and smaller range, then eventually breaks out of that range either up or down.

There are three types of triangles: symmetrical, ascending and descending.

The ascending triangle is formed by an upper horizontal line and a lower linear line formed by higher lows.

The descending triangle is formed by a horizontal lower line and an upper line forming minor highs.

In the case of the symmetrical triangle, all its sides are practically equal, indicating a balance between buyers and sellers.

Pennants

It is a trend continuation pattern.

It is formed after a sudden vertical movement in the price (similar to a flagpole), and it enters a “diagonal channel” in the opposite direction to the initial movement to finally make the break in the same direction as the beginning of the movement.

There are two types of pennants, bullish and bearish.

  • Bullish is when there is an aggressive rise in price and then it begins to fall diagonally, drawing a kind of flag. The trader will look for the breakout to the upside when the “flag” is drawn.

In the bearish trend, the opposite occurs, the aggressive vertical movement occurs downwards, then draws an ascending diagonal channel and ends up bursting downwards in continuity with the initial movement.

Shoulder-Head-Shoulder

It is so called because of its resemblance to the upper part of the human torso.

This figure is made up of three consecutive pyramids from left to right.

Starting with a small one that would be a “shoulder”, then a larger one that represents the “head” and ending with another small one of a size equal to the first that acts as the second “shoulder”.

This is a pattern that indicates to the trader a change of direction in the dominant trend of the cryptocurrency.

Continue with Supports and Resistances, and the rest of the content, reading the full article on the web:

👉 https://robertosanzcriptomonedas.com/analizar-tecnicamente-una-criptomoneda/

#binancepizza #TechnicalAnalysis#Education#Training#RobertoSanz