Technical analysis primarily involves the study of the real world data and predict the market’s behaviour. It also includes looking into the statistics of the cryptocurrency in question, including the factors like volume and movement.
After going through the article, you will get a basic understanding of the tools used for technical analysis. You will also be able to get an idea on charting cryptocurrencies making your investing or trading journey easier.
Charts
The most widely used charts by crypto traders include line, bar and candlestick. Candlestick charts are proven to be more effective than the other charts.
Candlestick charts
A candlestick chart represents the price moves of a cryptocurrency in a given or for a given timeframe. As the name suggests, it is made up of candlesticks each representing the same amount of time. The candlesticks can represent any period from seconds to years.
How do candlestick charts work ?
There are some points needed to create a candlestick which are, open, high, low and close.
Open: The first recorded trading price of the asset within a particular time frame.
Close: The lastrecorded trading price of the asset within a particular time frame.
High: The highest recorded trading price of the asset within a particular time frame.
Low: The lowest recorded trading price of the asset within a particular time frame.
The components provide useful information to read and the concise format also help to identify the different types of candlestick patterns.
Let’s focus on the simplest of the patterns which are bullish and bearish engulfing patterns.
Engulfing bullish engulfing and bearish engulfing patterns.
Relative strength index
RSI or Relative strength index is one of the common indicators in technical analysis. In stock market and cryptocurrencies like Bitcoin and Ethereum, in technical analysis the existing data is used to make more informed decisions whether to buy or sell for the traders.
RSI cannot totally be depended upon for Bitcoin and other cryptocurrencies.
Support and Resistance
Support and resistance are the most fundamental topics related to technical analysis of financial markets. They apply to any market, whether that’s stocks, forex, or cryptocurrencies.
The support and resistance are simple concepts. The price finds a level that it’s unable to break through, with this level as a barrier of some sort.
In case of support, price finds a “floor”, while in case of resistance, it takes a “ceiling”.
Let’s take an example of a support level. See that the price continually entered an area was retested multiple times. And since the bears were unable to push the price further down, it eventually bounced potentially starting a new uptrend.
Trend lines
Trend line is another basic technical analysis tool which is important, as the name suggests a line is used to identify a trend.
The tops and bottoms of candlestick patterns are traced. You may find out that a clear bearish or bullish trend for the price of the targeted cryptocurrency and act accordingly by adjusting the trading strategy.
Moving Averages
Moving average is usually shown as a line on the chart, representing a mean of a previous set of periods. As they are the mean of the data, they help to show the trend without much noise that occurs.
The moving average is using past periods to calculate it, so it is a “lagging” indicator or “trend-following‘ indicator. There are two types of moving averages Simple moving average and exponential moving average.
The simple moving average uses the arithmetic mean of a set of prices and the exponential moving average gives recent price action more weight. Moving averages may be used alone or can be used in conjunction with one and another.
