Cryptocurrencies and their trading are in trend now. People trading in crypto is increasing day by day, as well as its demand. Even Elon Musk tweeted that he might accept bitcoins in future as payments for Tesla cars, which showed a big jump on bitcoins price.
Unlike the stock market, gold, etc., Cryptocurrencies are highly volatile, which can cause sudden gains or losses. This is where you need Technical analysis for cryptocurrency to carry on a fair transaction. You can either go for the Fundamental Analysis or the Technical Analysis. Fundamental Analysis is more of a big picture, where the analysis is not confined to real historical data but also takes into account the asset’s inherent value.
Technical Analysis for Cryptocurrency
While trading on anything, our primary aim tends to become returns on investment. The period of the investment may be six months, one year, more or less, we want a decent profit and better fund security. Technical analysis would help you to predict the value or how the market will behave using real-time data. Before conducting a Technical analysis, it is better to understand exactly what it is and how it has to be done.
What is Technical Analysis?
Technical Analysis is basically analysing the real/historical data of the market to predict its future. For example, we use previous trend lines or graphs of volume or movement to understand what happened then and predict the future. It is a strong belief that history will repeat itself; therefore, it is important to do technical analysis before investing in cryptocurrencies.
Technical Analysis looks into the trends and charts of the strengths and weakness of the crypto and keeps it in mind to forecast the future market. Fundamental analysis (the other kind of analysis method mentioned before technical analysis) would be looking into the intrinsic value of the crypto rather than limiting past data.
Common Terms and tools/indicators for Technical Analysis for cryptocurrency
We can go around searching past data on cryptocurrencies. There are a few tools and terms that are used to understand how the market is behaving. For e.g., there are trends that will help us understand whether the particular crypto’s having higher highs or lower highs.
Here are a few terms and tools that can help you with the Technical analysis process:
One of the first element that a trader should learn is how to use Line trends. This is the basics of Technical analysis, but we need more tools to do technical analysis. The line trends will keep you updated with how the market trends are going. Because of the volatile nature of the crypto market, it is better to keep the line trends close while doing technical analysis. The Trends will help you understand how the market is behaving.
Most of the trading apps provide the trend lines feature, and it would be automatic. You can create your trend to have a more accurate analysis. Trends can be divided into three:
The upward trend happens when the value of the assets are going up, making higher highs and higher lows.
A downward trend happens the value of the assets are going down, making lower highs and lower lows.
Sideway trends are shown when the value of the assets trades in a horizontal manner where the highs and lows will be almost equal.
The volume underlay is an indicator or tool that will help you show the total volume of the crypto as a bar chart beneath each of the chart’s period. Unlike the rest of the indicators that are displayed in a sub-window, the Volume Underlay indicator is displayed within the actual chart. This is fairly an easy indicator to understand and use in the process of technical analysis.
Bollinger bands will help you evaluate the volatility of the market. They display a graphical representation/band where an average simply moves in the middle. Volatility refers to the rate at which the price of an asset would increase or decrease. A higher volatility means that the asset can potentially fluctuate rapidly within a larger range of value, and lower volatility means the asset value fluctuate slowly with a smaller range of value.
Pivot Points are said to be one of the most accurate tools in the world of Technical analysis. So Pivot point is an indicator of Technical analysis which shows the overall trends of the market at different frames of time. These indicators can be used in cryptocurrencies to plan the whole process. These are also accompanied by the number of resistance and support.
Pivot Point can be calculated using the simple yet powerful formula:
Pivot = (High+Low+Close)/3
MACD (Moving Average Convergence Divergence)
Moving Average Convergence Diverger=nce is a trend following indicator that uses and combines two moving averages.
- A Short-term moving average
- A Long-term moving average
This is analysed by combining these two moving averages to see what the current trend is and to know if there is any change in momentum.
Open-High-Low-Close Charts, commonly known as the candlestick charts, is an advanced technical analysis tool. This is basically a representation of the day’s high-low-open-closing price of the crypto/asset/stock. Candlesticks chart or OHLC charts are of two types.
A bullish candle can be either red or white in colour where the close is above the opening, and the top wick is high, and the lower wick is low.
A bearish candle can be either red or black in colour where the open is above the close, and the top wick is high, and the lower wick is low.
We hope that you have got to know what technical analysis for cryptocurrency are and the different tools and indicators to use. These indicators and tools can not only be used for technical analysis of crypto but also for assets, stocks, and other funds.
We also hope that you and your loved ones are doing good. Thank you, and have a good day ahead.