Understanding technical analysis in crypto trading

The crypto market is one of the most dynamic and least rational in which you can trade. In this regard, technical analysis is a valuable tool for making trading decisions. It will help increase your success rate when working with cryptocurrencies.

Understanding technical analysis in crypto trading

You don't have to be a world-class mathematician to master them, but if you want to work successfully in the crypto market, you have to have a good working knowledge of the basics.

Technical Analysis (TA) is a system based on studying past data relating to trading in order to predict future price movements. It looks at the behavior of traders who are acting according to certain technical rules that do not change over time or from one market to another.

In the crypto world, TA helps determine if a certain cryptocurrency will rise or fall in price based on past data and not on speculation, hype, or emotion. It is a set of tools that can be used to describe price action and project future prices. Technical analysis uses specific patterns which have been identified through statistical analysis of the market to determine whether an asset will rise or fall in terms of its value. You can visit to learn more details about TA and how it works.


Technical analysis is based on three types of data:

1. Price Data – A series of highs and lows over a period of time, usually listed as 12 periods on a normal trading chart. This includes daily, weekly, and monthly data.

2. Volume Data – Volume reflects the number of transactions in a security or an entire market during a certain period of time. It is typically depicted as a histogram (a bar chart with tick volume).

3. Oscillator/Indicator Data – A technical indicator that is used to measure market momentum and produce buy and sell signals.


4. Sentiment – How people feel about a certain asset or the overall market; whether they love it, hate it or expect huge growth (or loss) in the near future will directly affect its price.

When the price of an asset is high, market sentiment is generally positive. People buy with the anticipation that its value will increase even more in the future. Market sentiment when the asset's price is low tends to be negative or pessimistic. Few people want to invest in it and most expect it to fall in price even further.

The data used for technical analysis can either be historic (historical) data or real-time data.

There are several types of technical analysis, including:


• Trend Analysis – This focuses on the direction and strength of a trend. There are two kinds: secular and cyclical trends. A secular trend is a long-term trend that lasts for six months or longer, while a cyclical trend is shorter in duration. A cycle has three phases: growth, maturity, and decline.

• Fibonacci Arcs – This uses arcs plotted along a vertical line to show areas where an asset's price is likely to find support or resistance.

• Fibonacci Fan – This is a series of diagonal trend lines that are used with Fibonacci retracements to show areas where an asset's price may find support or resistance.

• Price Patterns – These are recognizable shapes found within a security's price action which traders use to make assumptions about future price movement.


As you can see, technical analysis is really a set of tools and not a magic formula. It will help you make sure that your cryptocurrency trading strategy is on the right path and it will help you avoid some of the mistakes that traders often make.


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