Technical analysis is a set of tools that can be used to predict how the price of an asset will change in the future. Its chart is considered to reveal patterns in the form of figures, and by the volume of trading it is possible to determine who dominates the market: sellers or buyers.
In general, technical analysts look at the following broad types of indicators:
- Price trends (how to identify trends, read this article)
- Chart patterns
- Support and resistance levels (what are the types of levels and how to learn to identify them, read this article)
- Volume and momentum indicators
- Moving averages
Fundamentals of Technical Analysis
- All factors which influence the price are already built into the chart
- Price is always moving in the trend
- History repeats itself
- Price is chaotic but it has a pattern
Not only does technical analysis in the crypto market work, but it is one of the main methods of valuation. This is so because no one can determine the fundamental value of Bitcoin and other coins.
All market participants “read the same books” and use the same methods. Trading bots, which function on indicators and graphical models, are arranged according to the same laws. Cryptocurrency is close to traditional assets. However, due to the underdevelopment of the market, coin prices can be manipulated by big players, which reduces the effectiveness of technical analysis. Technical analysis is suitable for Bitcoin and top altcoins, but can fail with tokens from questionable projects. Rates of unknown, illiquid coins are prone to manipulation, this should be taken into account.
When using technical analysis, traders need to analyze the market on short and long timeframes simultaneously and take into account the volume of assets traded. It is also necessary to monitor one’s psychological state, because it accounts for more than 50% of success in this difficult occupation.
It is very important to follow risk management. Exchanges offer the possibility of trading with big leverages, the use of which can quickly bring your deposit to zero.
But remember, the success of the trades depends on how well the TA itself is used by the trader.