What is crypto technical analysis

• Published 2 Year Ago
• DHS Blog

What is crypto technical analysis, and how do I conduct one?

Based on prior market data, crypto technical analysis can be used to predict future patterns in the cryptocurrency market using a mathematical model. The core premise is that markets act in predictable ways and that once formed, trends moving in a particular direction frequently stay along the same path for some time. To put it another way, investors aim to buy low and sell higher in the future so that they may profit from the dips in the market. Before establishing a position, it is possible to identify price levels that may be regarded as low by conducting a technical analysis. There is no one-size-fits-all approach to cryptocurrency technical analysis. Each trader will have their own set of preferred indicators and a unique take on how those indications should be interpreted. No Technical analysis can be predicted with any degree of certainty should also be acknowledged.

The fundamentals of crypto technical analysis

You can use a wide range of technical indicators and chart patterns to do crypto technical analysis. Learners of technical analysis can benefit from familiarizing themselves with a few of the most common technical indicators.

Candlestick Charts

 

As part of the crypto technical analysis, candlestick charts are popular with traders because they provide information. Candlesticks display four price levels for each time interval instead of condensing data into one point. These are a few examples, going from the very top to the very bottom:

• High price
• Opening price
• Closing price
• Low price

Using a bar and two wicks, candles show this information. The highest prices are at the top of the wick, which represents the most expensive item, and at the bottom, which represents the least expensive item. The candlestick's body can be either green or red in color. The color red denotes a drop in prices from the day's opening, whereas the color green denotes an increase. On green candlesticks, the top is the closing price, and the bottom is the opening price. The opening and closing prices are shown at the top and bottom of a red candlestick. In the context of other data points, each candlestick provides a thorough insight into how investors buy and sell crypto at a given time.

Levels of Support and Resistance in crypto technical analysis

As part of the crypto technical analysis, when we talk about support and resistance levels, we're referring to the bottom and top of a price cycle, respectively. To make informed trading decisions, traders might recognize these levels and then use them. Is there a way to tell if someone will be supportive or not? There are numerous ways to do this. Looking at a chart and noting where prices have retraced (or even bottomed out) is sometimes all it takes to identify support and resistance (in the case of support). These price points may influence a trader's technique once found. Two examples are using stop-loss orders at support and selling orders to take profits at resistance.

Support and resistance levels can be utilized in various ways, from attempting to predict price reversals to indicating that a new trend has arisen if prices continue beyond these levels. Prices may continue to rise over resistance if they continue to do so. The same holds true if prices continue to fall below a certain level of support.

Relative Strength Index (RSI)

One of the most popular indicators among both experienced and newbie traders in crypto technical analysis is the Relative Strength Index. Below the price chart, you'll see a basic line graph for this indication. The line is in a state of oscillation between 0 and 100, with a value of 50 denoting equilibrium. An overbought condition is characterized by a greater value, whereas a lower value characterizes an oversold condition. The RSI, like many other technical analysis indicators, works best when used in tandem with others. At the same time that prices are closing in on an established support level and the RSI is reading 20, the odds of a price rally are higher than usual.  

Average Directional Index (ADX) in crypto technical analysis

Using the average directional index in crypto technical analysis, investors may see how strong a trend is in the near term. The more the ADX rises, the more momentum there may be behind the current trend lines. It is the average of the directional movement lines' values for a given time period. The current low and high prices are used to calculate these lines. The ADX, like the RSI, has a range of 0 to 100. ADX rarely rises beyond 60, in contrast to several other indicators. A value of 25 or more shows a strong trend, whereas readings below 20 suggest little movement. Neutral or no trend occurs between 20 and 25.

Moving Averages (MAs)

When it comes to determining the direction of a trend, moving averages can be just as useful as the ADX for investors. Using the number of data points divided by the total, a moving average calculates the average price of a cryptocurrency. It's called a "moving" average since it's regularly updated based on current prices. Long-term moving averages are seen as more reliable indicators because of the greater amount of data they incorporate. Short-term monitoring of MAs is also possible. For example, there are several types of moving averages, different periods, and different ways to utilize them to determine a trend. Using MAs, the "golden cross" is one of the most popular bullish setups. A short-term moving average (most typically the 50-day MA above the 200-day MA) crosses over a long-term moving average.

Trend Lines in crypto technical analysis

As their name suggests, trend lines in crypto technical analysis depict perspective trajectories. For example, many trend lines can be drawn on a single chart to highlight more complex patterns. In their most basic form, trend lines are single lines that connect a series of high and low price points. The greater the number of points on a single line, the more likely the trend will continue. A range of alternative crypto technical analysis configurations can be shown by drawing trend lines.

Cup and Handle Pattern

A well-known bullish setup is a cup-and-handle pattern. Price charts can be overlayed to show a cup (the bottom half of the circular shape) and corresponding handle (a downward-slanting line at around a 45-degree angle). If prices are to fall, trade sideways for a short time, then rise for about the same amount of time they fell, a sharp but temporary decline is required. The handle is formed when the pattern is confirmed, and prices are expected to climb as a result. The bearish inverse of this pattern is also possible. Prices may drop if a cup and handle are turned upside down.

The Bottom Line

Before making a crypto investment, investors should familiarize themselves with various topics, one of which is crypto technical analysis. The signs used in bitcoin technical analysis are based on mathematics, but their interpretation can be highly subjective. It is important to remember that no technical indication is 100% accurate. A price reaction different from expected can occur even when many indications are pointing in the same direction.