There’s no denying that the cryptocurrency market is volatile where the potential losses can be huge, but also, there is a possibility of earning high.
If you want the latter, then you’re going to need a strategy to guide you in crypto trading. For that, you will need tools to help you create your plan. One of these tools that many traders utilise is technical analysis (or TA).
For beginners, this may seem daunting. But, once you understand the basics, you’ll get an idea of what you need to look for in a profitable trade.
The Basics of Technical Analysis
Technical analysis is a quantitative approach in analysing and estimating an asset’s price movements. It involves looking into the past movements of a coin through price charts and trading volumes.
This is where statistical data, charts and graphs are utilised to predict the future of the market, the trend, and how far the price of an asset will fall.
Understanding the Principle Behind TA
The underlying principle of TA is the Dow Theory. These are some of the fundamental ideas that became a framework of this strategy:
- The market has considered everything in its pricing. This includes the past, present and future demand, regulations in the crypto market, and many more.
- Price movements often follow trends. After a trend is formed, it’s most likely going to follow a trend to oppose it.
- ‘What is happening now’ is a more important question than ‘why it happens’. It focuses on the supply and demand than looking into the different factors that influenced a coin’s movement.
- ‘History repeats itself’.Traders who apply technical analysis in their strategy also derive their predictions from market psychology.
There are different tools used in the TA strategy to determine if it is an excellent time to buy or sell a crypto asset. Here’s a review of some of the tools:
Trend Lines
Trend Lines are one of the basic TA tools every trader learns. It indicates the direction where a cryptocurrency moves, however, it needs analysis to understand it.
Due to the volatile nature of the crypto market, traders have to find the major trend from the highs and lows. It can be quite complicated to look for the trend.
Candlestick Charts
This is one of the most common graphs technical crypto traders use. It looks like a candle because of its rectangular shape and a line coming out of the top or bottom.
The top and bottom of the rectangle reflect the opening and closing prices of the cryptocurrency for the day.
If it is green, then it means that the coin increased in value, thus, the opening price is at the bottom and the closing price is at the top.
If it is red or pink, then it means the price of the crypto fell, so, the opening price is at the top while the closing price is at the bottom.
The wick is the volatility indicator of the cryptocurrency. A short wick means that the highest price of the coin for the day is significant. Whereas a long wick signals that traders are willing to buy at its lowest value and can signify a future upward movement.
Market Caps
Knowing the market capitalisation of a coin gives you an idea of its stability. To calculate the market cap, multiply the total circulating supply of a coin to the price of each coin.
Generally speaking, a coin that has a large market cap is more stable.
Support and Resistance Levels
These horizontal lines on your trading chart will give you more insight about crypto. If a coin reaches the support level, it means there is a large demand. The resistance level is the opposite – there is too much supply without much demand.
A ‘breakout’ happens once a price moves above the resistance level or below the support below. It could mean that it is strengthening the trend.
However, a false ‘breakout’ can also occur which means that the trend did not change. This makes it important to look at the different figures and factors in technical analysis and come up with a more accurate prediction.
Can You Start Crypto Trading Even Without Background?
Yes. Anyone can start crypto trading however it can be challenging if you don’t have a guide. This leads to some people viewing crypto trading as a scam.
If you’re a beginner, it is best to find a platform or tool that simplifies technical analysis. There are some software that have a user-friendly interface which makes it easy for first-timers to navigate around.
I would recommend CryptoCruisers because the features in their online dashboard make it easy to find good trading opportunities. Users get to access their four different tools: Market Overview, Technical Analysis, Media News Trend and Social Media Hotness Indicator.
What makes it great for those who have no crypto trading background is that their Technical Analysis tool crunches the numbers into something that is simple to understand. Their other tools also provide insights that you can look into before making a final decision whether to buy or sell.
Creating an account is FREE but, to unlock the full features, you need to have a minimum deposit of €250, which you can use entirely to make trades with. There are no hidden or recurring fees plus you can get access to a trading specialist who can guide you.
The tool is relatively new so there are constant updates to improve its user experience and functionality. If you want to start trading right away, then it’s worth checking out this crypto trading solution.
