What are the key elements in performing technical analysis of a cryptocurrency

February 17, 2021

Reading Time: 5 minutes

The Crypto market is known for its volatility, an aspect that can bring you misery or a fortune at the same time. That being the case, cryptocurrency technical analysis becomes the key to trade successfully for either newbie or veteran traders in the industry.

To grasp this concept, it is necessary to first understand the meaning of Cryptocurrency technical analysis as a statistical indicator, charting patterns, or both that uses either candlestick, line charts, and bars to predict the strength of a trend.

To successfully venture into crypto trade, you certainly need crypto technical analysis to guide you in making rational trading decisions as well as creating an appropriate trading strategy at a given time. Being in a position to access well-researched analytics and correct crypto trading strategy increases the overall strategy of winning any given trade. However, with a misinformed approach, losing money would form the bigger part of your trading. Thanks to MyCryptoParadise experts whose does the technical analysis and avails accurate crypto indicators to crypto traders.

There are many crypto trading strategies in the market up for use. These include the classic HODLing to more complex tactics such as day trading. It could all be useless with all the available strategies if you do not know how to read and make sense of the market.

Attempts to help read and interpret the market led to the creation and development of technical and fundamental analysis. Fundamental analysis is used to assess capital and Bitcoin flows along with harsh rates, mining behavior, power prices, or active wallets.

Ability to read the market comes in handy when choosing the strategy to use. For that, I will therefore explain how cryptocurrency market analysis works.

What is crypto Technical analysis?

Cryptocurrency technical analysis is the study of real-world data of past crypto market behavior so as to try and predict the future of the market. It entails going through past statistics of the particular crypto; details of trading volume and movement.

Some of the applications of cryptocurrency technical analysis are in any securities with data of its trading history. These are, for instance, cryptocurrencies, commodities, stock, and forex.

Cryptocurrency technical analysis gives you an in-depth explanation of the crypto market’s past movements and the specific crypto itself. This information will form a basis in the prediction of the future of the digital asset.

How does crypto technical analysis work?

There is a chart showing trading volumes and prices, representing all choices made in the previous market by traders. The data is bound to have an impact on traders’ future choices based on these two theories:

  1. Psychological– One’s past actions would determine how they would act in future circumstances. For instance, most traders tend to concentrate more on the price they purchased the crypto at. If the value drops, they aim at selling when the price achieves break-even point again.
  2. Reflexive– Other traders find common trends and chart movements and trade with this in mind. If a significant number of traders go as per the same strategy, it is anticipated that the chart patterns will have a predicted result. The trend will, also more probably, be sustained with more people following the trend.

 

Market trends

  • Uptrend – the asset moves upwards, creating higher highs and high lows.
  • Downtrend – the asset moves downwards, creating lower highs and lower lows.
  • Sideways trend – the asset is traded in a horizontal channel; highs and lows are almost constant.

Traders sometimes call trends “bearish” or “bullish.” Bullish; bull who strikes upwards raising prices, bearish; bear strikes down using its paws, pushing prices down.

Crypto Trade volume

The trade volume is essential in the technical analysis of crypto, any other assets, and the market. It is the number of tokens traded within a selected timeframe. This is depicted as a row of columns at the bottom of a price chart. Trade volume translates to the seriousness of a trend with higher trading volume viewed as a strong trend, and the opposite is also true.

Enhanced crypto technical analysis tools

The advanced crypto technical analysis goes ahead to use more complex tools.

  • OHLC Charts (Open-High-Low-Close)

Charts used show bars called candlesticks whose shape varies depending on the day’s high, low, opening, and closing prices. The technique was developed in Japan in the 1700s to track rice prices.

Bullish candle (green or white) – closing is above the opening.

Bearish candle (red or black) – closing is below the opening.

The candlestick charts determine the market patterns.

  • Simple moving average

This is the average of the closing value of the assets in a specified measured period.

  • Bollinger Bands

This shows a graphical band with a simple changing average in the center. The envelope’s width shows the instability.

  • Moving Average Convergence Divergence (MACD)

MACD combines short-term and long-term moving averages. The combination identifies the current trend and detects a change in momentum. Here is an example of one:

 Effect of news on asset prices

As you will agree with me, media has always been a tool of influence and any type of news is capable of causing a mass panic or excitement depending on what they are about. News has taken a core position in the crypto industry. For instance, in September 2017, the Chinese government placed a ban on ICOs leading to Bitcoin prices dropping, from $5,000 to $3,000. Bitcoin recently recorded a surge after TESLA announced its plans of accepting it as a means of payment.

Conclusion

Well-researched crypto market analytics are key to succeed as a crypto trader. However, there is no party that is 100% accurate with predictions of the future crypto movements. Hence, it is necessary to always do your personal research before investing your hard-earned money to avoid unforeseen regrets. Hence, the need to educate crypto traders so that they are always on the same page as our own expert when it comes to analyzing crypto market trends.

Did you find this article interesting? Would you like to learn more insights on a broad spectrum in crypto trade? If the answer is Yes! Do not hesitate to frequently check on Mycryptoparadise blog. Besides, you can subscribe to MyCryptoparadise YouTube channel where team of four successful traders we shall keep you posted on crypto market analysis.

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