How To Use Technical Analysis In Crypto Trading

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Want to jump straight into technical analysis in cryptocurrency trading? TradingView is the premier charting tool with all the indicators and charting tools you need to trade cryptocurrencies with technical analysis.

Trading assets and markets can be very difficult. Whether you're day trading, swing trading or scalping, it doesn't matter. According to various studies, 70% to 97% of traders lose money over time. However, every advantage that traders can take increases their chances of success.

A trading advantage can be strategy, technology, risk management, technical analysis, or anything else that contributes to success. A trader without margin can sometimes win trades, but will struggle to win consistently.

Understanding technical analysis is a huge benefit for traders. Although not perfect, technical analysis can give traders a complete picture of an asset or market.

What is technical analysis in cryptocurrency trading?
Best trading signals for crypto technical analysis
the cross of death
Head and shoulders
Triangles (upward, downward and symmetrical)
price channel
How to use technical analysis in cryptocurrency trading
The Risks of Using Technical Analysis in Cryptocurrency Trading
Technical analysis and fundamental analysis in cryptocurrency trading
Moving Average Convergence Divergence (MACD)
Relative Strength Index (RSI)
glass knot
CoinMarketCap
Is the technical examination worth it?

What is technical analysis in cryptocurrency trading?

Technical analysis looks at asset prices, volume, support/resistance levels, and chart patterns, among other things, to determine whether an asset is bullish or bearish. Technical analysis is also used to identify potential return levels and help develop a trading strategy.

A common mistake that new traders make is not developing a trading plan before entering a trade. A good trading plan based on technical analysis should have at least the following elements:

Entry fee
position size
Get a profit target and strategy: will you close all trades or continue?
Risk Management: How much you are willing to risk in the trade = stop loss position

Capital protection through risk management is essential for all traders, especially new ones. It is also important to stick to your plan when entering a trade; don't let your emotions change your plan.

Traders will also use technical indicators to support their analysis. The list seems endless, but here are some of the most popular.

Relative Strength Index (RSI)
Moving Average Convergence Divergence (MACD) indicator.
Stochastic oscillator
Collection/distribution line (A/D line)
Average mobile

Technical examination can be done at any time. The useful life depends on the type of your trade.

Best trading signals for crypto technical analysis

Traders can use a variety of trading signals to identify trading opportunities. Some are price patterns that develop over time, while others are created by technical indicators. Here are some examples of common trading signals.

the cross of death

A death cross occurs when a short-term moving average crosses below a long-term moving average, indicating recent price weakness. This signal is usually the 50-day moving average falling below the 200-day moving average. Death Cross is not 100% accurate as moving averages are lagging indicators that show the past performance of an asset.

how to use technical analysis in death cross cryptocurrency trading

The golden cross that shows the ultimate strength of the award is the opposite of the cross of death. A golden cross is formed when the short-term (50-day) moving average crosses the long-term (200-day) moving average.

Head and shoulders

The head and shoulders pattern is a key pattern that indicates a possible trend reversal. This is a three point price formation with a base line, the two outer peaks near the top and the middle peak at the top.

The model has a right shoulder, head, left shoulder and neck. Traders who spot a head and shoulders pattern will usually wait for the price to break out of the neck before entering a short position.

An inverted head and shoulders pattern is forming underneath, indicating a possible trend reversal.

Triangles (upward, downward and symmetrical)

Triangles are another typical chart pattern, especially in Bitcoin. Triangle patterns consist of two trend lines that meet at a point. Triangle patterns are classified as ascending, descending and symmetrical.

An ascending triangle is an ascending formation that appears as a continuation pattern in an uptrend. Sometimes they form in a downtrend and act as a reversal pattern.

Ascending triangles have an upper trend line that is relatively flat and indicates greater resistance. The lower trend line forms an upward move if the price makes higher lows. Volatility decreases as the price approaches the top of the triangle formation. To enter a long position, traders look for a break above the upper resistance.

A descending triangle is a bearish pattern that is the opposite of an ascending triangle. Descending triangles have a relatively flat bottom trendline that serves as a support level. As the pattern develops, the upper trendline gradually shows lower resistance forming a downward slope. Before entering a short position, traders look for expansion below the lower trend line.

The chart above shows Bitcoin's massive descending triangle during the bear market of 2018.

Symmetrical triangles are formed by two converging trend lines; they show the volatility of the market and are considered as monitoring models. Usually, a breakout occurs in the general direction of the market.

price channel

A price channel is formed when price bounces between parallel resistance and support lines. Price channels can be flat or bullish or bearish. Traders will look for opportunities to buy and sell support or short resistance. Traders will also be looking for opportunities to buy or sell when the price breaks out of the channel.

How to use technical analysis in cryptocurrency trading

While not perfect, technical analysis can give traders a broader picture of a specific cryptocurrency or the market in general. You need good tools to help you perform technical analysis. The most important thing is a good mapping software or a solid platform; TradingView is one of the best charting platforms out there. TradingView is free, but serious traders may consider a paid subscription.

Another advantage of technical analysis is that it shows good entry and exit points. Technical analysis can also be used to identify support and resistance levels. Traders can use technical momentum and volatility indicators such as Average True Range to determine position size and risk management.

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The Risks of Using Technical Analysis in Cryptocurrency Trading

Technical analysis can be very useful, but you need to be aware of the risks. The sheer number of technical indicators and chart patterns available can be confusing. Multiple options can cause you to bounce from one indicator to another before a strategy is fully developed and tested.

Choosing which indicators to use and how many indicators to use can be a difficult task. It's easy to overload the chart with indicators, resulting in confusion, which is a common mistake for new traders.

Technical analysis and fundamental analysis in cryptocurrency trading

Now that you understand the basics of technical analysis, let's compare it to fundamental analysis. Technical analysis looks at price action, volume, and chart patterns to analyze a cryptocurrency.

Fundamental analysis analyzes on-chain data for specific cryptocurrencies, exchanges and miners. It may also contain information specific to the project, such as the people or teams who created B., the project objective, the project roadmap, and the project tokenomics.

Short-term traders rely primarily on technical analysis, with some combining technical and fundamental analysis. Long-term investors will focus on fundamental analysis, but long-term technical analysis can also be included.

Here are some of the more popular technical cryptanalysis tools.

Moving Average Convergence Divergence (MACD)

Based on the relationship between two moving averages, the MACD allows you to assess the current direction of the trend (bullish or bearish) and predict where the price will go.

Relative Strength Index (RSI)

RSI is a momentum indicator that analyzes the magnitude of recent price changes to determine whether a cryptocurrency's price is overbought or oversold. The indicator can also be used to identify bullish or bearish divergence between the indicator and the price.

Here is an example of the most popular tools used in basic cryptanalysis.

glass knot

Glassnode is a blockchain analytics company that provides blockchain marketplace and data exchange. Some of Glassnode's data categories include markets, exchanges, network stats, win/loss, and distribution. Traders can learn a lot from this data, such as B. Currency inflows and outflows, whale deposits and withdrawals, and balance addresses.

CoinMarketCap

CoinMarketCap is the world's most popular cryptocurrency price tracking website. With over 21,000 different cryptocurrencies, cryptocurrencies are ranked by market capitalization.

Researching any cryptocurrency project is easy with CoinMarketCap. Everything you need to know about the project team, tokenomics, roadmap and past price trends can be found on the website. CoinMarketCap is an essential tool for traders and investors.

Is the technical examination worth it?

Although not perfect, technical analysis can give traders a significant advantage. If you don't do technical analysis before entering a trade, you are trading blind. However, it takes more than technical analysis to become a profitable trader.

Traders must also develop a repeatable strategy that increases the probability of a profitable trade. Before entering a trade, traders must also develop a trading plan. Anyone who has traded knows that emotion is a trader's worst enemy. Developing and sticking to a trading plan will help take the emotions out of trading.