Cryptolife Highlights June edition: Technical Analysis

Introducing the June edition of Crypto Life Highlights!

Last month, we covered the topic of Crypto Trading Psychology and how investors keep a strong mindset when trading cryptocurrency.

But this is just one of many important principles in trading. So for this month’s topic, we want to shift our focus to technical analysis.

What is Technical Analysis?

Technical analysis is a popular method used by traders to analyse the market. It involves studying historical price data, such as charts and indicators, to identify patterns, trends, and potential future price movements.

The purpose of technical analysis is for this historical data to provide insights into market psychology and help predict future price behaviour. Some traders believe that market participants tend to repeat certain patterns and behaviours, which can then be identified and used to make trading decisions.

Common tools in technical analysis

• Price Charts: A visualisation, including line charts, bar charts and candlestick charts, to show price movements over different periods. Used to display historical price data and patterns that can provide insights into the market.
• Trend Analysis: Trends are analysed to identify the direction in which prices are moving. These are either labelled as “bullish” (price moving upward) or “bearish” (price moving downward)
• Technical Indicators: Mathematical calculations based on historical market data that provide additional insights into trends and potential market movements. Common indicators include moving averages, relative strength index (RSI), stochastic oscillators, and MACD (moving average convergence divergence).
• Support and Resistant Levels: Key price levels that traders use to identify potential entry and exit points. Support levels are seen as price floors, where demand is expected to be strong, while resistant levels act as price ceilings where selling pressure may increase.
• Chart Patterns: Recurring patterns in price charts, such as triangles, double tops/bottoms, head and shoulders, and flags. Chart patterns are believed to have predictive value and can signal potential trend reversals or continuations.

How do traders conduct technical analysis in crypto?

So we know the basics of technical analysis, but the question now is how it all comes to play. To put it simply, let’s break it down into steps:

• Choosing a crypto to analyse: Traders first choose the token they want to analyse and from there, gather its historical price data. This kind of data is easy to find and is often found on most crypto exchanges and price-tracking websites.
• Identifying the frame: Next, traders will need to determine the timeframe in which they want to analyse. This can range from short-term trading to long-term investing.
• Using technical indicators: This is where things get a little more technical. Remember the technical indicators we mentioned earlier? (e.g. relative strength index). This is when traders use them to gain additional insights into market trends and potential price movements.
• Looking for chart patterns: Now, the chart patterns come in. Next, traders will look for the common chart patterns, like triangles and double tops/bottoms, to help determine price reversal or continuation, and ultimately make more informed decisions about their trading strategy.
• Identifying support and resistance levels: Traders will then get an idea of the level of support and resistance by searching for areas where the cryptocurrency has a history of buying or selling pressure.
• Making a trading decision: Finally, traders will come to a final decision based on their analysis — ranging from buying or selling the crypto token, or HODLing it long-term.

That’s a wrap! 👏

That’s all for this edition of Crypto Life Highlights, so we’ll see you again in July. Thanks for reading!