Anyone who wants to dabble in crypto trading must know how fundamental analysis and technical analysis works. Technical analysis allows traders to get better insights into the market sentiment for making better trades. They can identify trends in markets and use the data to make accurate predictions. Here are some important things that should be part of the technical analysis process undertaken by Bitcoin beginners and crypto beginners:
- To start with, according to the Dow Theory, the market must consider different aspects when determining pricing, such as, all past, existing, and future details have to be examined. For cryptos, this will include variables like the past or future demands and laws concerning the market. Technical analysis lets you interpret what prices dictate about the market sentiment; this in turn helps you make wiser trade decisions.
- Price movements are never random but they always follow trends. These can be long or short-term but a coin will typically start following a trend and then ultimately oppose it. So, using technical analysis, as a trader, you need to identify trends to make profits.
- Those engaging in technical analysis are focused more on finding out “what” makes prices move rather than “why” it moves. Automated trading apps like bitcoin profit are one of the major reasons for the hike in price of Bitcoin as they trade day and night.
- Those trading crypto will use trend lines in technical analysis; this makes it easy to isolate trends. But this is a challenging task; crypto coins are volatile and when you watch Bitcoin or crypto coin price movements, you can see many highs and lows. A series of highs shows an upward trend while one of lower lows indicates a downward trend. Besides, there are sideway trends where the coin has not significantly moved up or down.
- Knowing resistance or support levels is important when engaging in technical analysis. These are horizontal lines showing support and resistance. This helps you understand the current demands or supply of a coin. When it shows support level it means many traders are keen to buy the coin or it has a large demand. Such traders think that the prices are low at that time and will be eager to buy coins at that price. When the coins reach the level, many buyers are created and the demand stops the decline. Resistance is just the reverse; it is the place where sellers wait with orders to form a large supply.
- Moving averages are an important tool in technical analysis for crypto traders. It is based on average prices of coins over a time-period. When you connect these moving averages, you can form a line. EMA or exponential moving average is one that attaches more weight to price values in the recent past than earlier days.
- Trade volumes will play a key part in identifying trends; the important trends are accompanied by high trade volumes while the weaker trends suggest low trade volumes. If a coin has been going down, you need to see its volume. When the volume decreases during price increase, it means that the upward trend will soon end.
To conclude, technical analysis charts and tools help crypto traders and Bitcoin enthusiasts to identify trends or understand market sentiments; these help them to make far better trade-related decisions. But when trading, you should not only depend on technical analysis; this is because crypto prices are significantly impacted by news and events happening around them. So, it is advisable to mix both fundamental and technical analysis to make the best decisions.