How to Crypto: Technical analysis — Basics
In this week’s How to Crypto we will introduce you to the basics of technical analysis (TA): Resistance and Support levels alongside trends.
What is technical analysis?
Maybe you are new to cryptocurrency world and don’t even know what technical analysis is. Don’t worry, we got you covered…
Technical analysis is, in simple terms, a method of analysis based on study of past market data (e.g. price movements or volume), pattern recognition and trend identification. This methodology makes use of statistical data, most often found and represented in the form price chart and its indicators— therefore the name technical. Those using TA then make predictions of future price movements based on gathered and analysed data and recognised chart patterns. This is commonly used for trading, from scalping to long-term trades.
The other type of analysis commonly used in cryptocurrency space is fundamental analysis, which focuses on completely different aspects of assets/coins/stocks/etc. and which we won’t be discussing in this article. (We are planning a separate article about fundamental analysis soon though)
Find resistance and support
Both resistance and support are terms referring to a specific price level in a price chart: Resistance is used to describe price level keeping the price from climbing further up; Support is a price level that “holds” the price from below and keeps it from breaking down. Picture below should give you an idea how that can look in an actual graph:
Resistance and Support should be an essential part of every trader’s repertoire. You can try and use it to predict on what level will the price stop (maybe you’ll place a sell order there) or what level will hold after a big dump (so, maybe you’ll place a buy order there). There are certain things you’ll learn to try to look for, for example: if a price level (either resistance or support) has been tested several times and yet it didn’t break, it probably means this particular resistance or support is a strong one.
We recommend experimenting and finding your own strategy, this is in no way a financial advice — we merely provide you with useful tools.
Find market trend
A trend is sort of an overarching tendency of the market to, simply put, go up or go down over a certain period of time. The basic differentiation is between an uptrend (going up) and a downtrend (falling down). Typically, you want to monitor the market for some time (and/or look at the past data) to determine its current trend — be wary of big moves, big crashes and breaks of important price levels which could change (or confirm!) current or previous trend.
Generally good advice is: Do not trade against the trend. Especially if you are inexperienced and new to trading, you usually want to trade with the trend, meaning opening Long positions (betting on the price going up) in uptrend and similarly, opening Short positions (betting on the price dropping) when in downtrend. Again, this is not financial advice, test your own strategies and decide for yourself.
Personal experience
I have started learning TA short after buying my first cryptocurrency in 2018 and for some time I have been very active when it came to TA based trading. Now, not so much but I am still learning new methods, patterns etc. that help my orient myself on the cryptocurrency market.
