Pros and cons of technical analysis in crypto trading

Technical analysis allows you to monitor the current state of the market and predict price movements based on the readings of specially designed indicators and historical data. However, it is worth noting that the indicators do not work in 100% of cases and can not be a decisive factor that determines the direction of the course, so traders often make errors.

Technical analysis was first used by rice traders in Japan. They found certain patterns and cyclic nature of the market. This is where the famous “Japanese candles” used in some modern charts came from.

Later in the twentieth century american journalist Charles Dow discovered the patterns of the stock market:

• Predictability. Any market movement is caused by specific events and it is natural.
• The market is cyclic. Everything that happens can happen again under similar conditions.
• There are patterns in any market. These patterns allow you to determine whether the trend direction will be maintained or changed by evaluating the impact of the factor.

All these rules formed the basis of the “Dow theory”, which became fundamental for technical analysis of the market.

Now every exchange displays a standard minimum set of tools for technical analysis by default. They may differ on different crypto exchanges, but they are mainly indicators such as:

• Candlestick charts and PA figures;
• Order book
• Trading volume
• SMA (moving averages)
• Additionally, there can be MACD charts

Pros of technical analysis

Technical analysis, if you have experience, allows you to quickly respond to market changes. Fundamental analysis requires time, while technical analysis allows you to identify changes in volumes and quickly make a trading decision.

Another advantage is that trading tools allow you to work with the market at any time and develop your own strategies based on them, combining various indicators and/or figures.

When used correctly, the indicators are quite accurate, especially during local price fluctuations. Indicators are more effective during periods of high volatility, which is typical for cryptocurrencies.

Cons

The main drawback of technical analysis is that it does not take into account fundamental factors that affect the dynamics of the market movement. Indicators are a consequence, not a cause of price formation, but allow you to predict short-term movements with a certain probability, determine the moments of changing trends and track how oversaturated the market is at a particular moment.

Another drawback is the difficulty of learning. The indicators themselves can be learned by any beginner — this is their advantage. But individual indicators are not very effective and may not take into account a number of other factors affecting the crypto market. Indicators are most effective in conjunction with other indicators and PA figures, but they require a lot of time and effort to master them all. Technical analysis requires high accuracy from traders, which is developed through long practice.

Trade-mate.io service uses advanced PA charts that contain all the necessary tools for technical analysis of the crypto market. Using the platform, traders can copy trades of larger players and trading bots on the Binance, BitMEX and Poloniex exchanges, as well as use the Smart Trade function with trailing mechanisms.