Crypto Technical Analysis for Beginners
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Crypto traders have many trading tools to evaluate the crypto market. The primary tool that traders use to approach the market is known as Technical Analysis. Using TA, crypto traders get a much better evaluation of the crypto market and be able to analyze significant trends in the crypto market. This information is used by traders to make wiser trade executions. Technical analysis uses historical prices of a coin to analyze the current price charts and trading volumes. As opposed to technical analysis, traders use fundamental analysis to concentrate on establishing if a crypto coin is over or undervalued.
When using technical analysis, it doesn't matter what market TA is used in; the fundamentals are all the same. Traders that use technical analysis only care about the pace and range of price changes over a specified period. However, let's say that someone found a new process to create titanium from aluminium inexpensively, the titanium market would be disrupted as would historical market patterns, thus making it a wrong choice for traders to use technical analysis. Traders should remain conscious of these macro influences on whatever market they target with technical analysis. In the crypto world, macro impacts can include regulatory statements, news bout an exchange getting hacked, or new about an institutional firm entering the crypto market. Now let's get into some of the essential technical analysis's tools.
Trend lines, which are directional lines that a crypto coin is moving towards, are utmost helpful for traders when analyzing the crypto market. With that being said, segregating these trend lines can be easier said than done. Crypto assets are very volatile, and watching a coin like Bitcoin the price movement will expose a selection of highs and lows that create a linear pattern. Traders comprehend that they can oversee the volatility and find an upward trend of higher highs, and they can identify a downtrend when they see a series of lower lows.
Furthermore, there are trend lines that also move sideways, and this means that a particular crypto coin doesn't move significantly in either an upward or downward trend. Traders need to be aware that market conditions can cause trends to come in many forms, including midway, long and short term trend lines.
Resistance and Support Levels
In addition to trend lines, there are also level lines that depict the assets support and resistance levels. When traders identify these values, they can conclude the current supply and demand of the crypto asset. When a trader determines a support level, they find that there seems to be a substantial number of traders that are willing to buy the asset at that level. For example, the current market price for BTC is $9000; traders will do their technical analysis and then consider the price at $8700 to be the support level, therefore, concluding that $8700 being the price they will seek to buy. When BTC reaches close to the $8700 price level, a 'floor' is created. The floor will usually stop the decline of the price further and occasionally even changes the momentum to an upward trend.
A level of resistance is the complete opposite, this an area where many sellers wait patiently with their orders, forming a significant supply zone known as the 'ceiling'. Using the example above, suppose the trader finds that the resistance level is $9300, whenever BTC approaches that 'ceiling' level, it encounters the supply order and goes back down.
Now you are probably wondering what happens during a breakout of resistance or support level? Well, this tells the trader that there is a high chance of this strengthening the existing trend. Additional support of the direction is attained when the resistance level becomes a support level, and this only tested when the price is hovering over the resistant breakout level.
By using technical analysis, traders can recognize market trends and use this analysis to make better trade decisions. However, traders need to consider several points when using technical analysis. Technical analysis is an applied method that weighs historical prices of an asset and their trading volume. When considering entering a trade, do no solely rely on technical analysis. Specifically, in the crypto market, there are fundamental influences that play a significant impact on this market and should also be considered along with technical analysis. A trader that decides to buy a crypto asset with fundamental and technical analysis usually strengthens the trades ROI.
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