Technical Analysis: Types

In the previous blog we went through all the markers that you need to remember while you are technically analysing the market. In this blog we will be going look at two types of Technical Analysis. Read on to find out more.

Elliott Wave Analysis

The Elliott Wave principle is a form of technical analysis that cryptocurrency traders use to analyse market cycles and forecast market trends by identifying extremes in investor psychology, highs and low in prices and other collective factors.

Elliott Wave traders believe that markets are affected by collective investor psychology, or crowd psychology, and that it moves between optimism and pessimism in natural sequences.

It seems to be a discipline suited for cryptocurrency traders because, at this time, they are being solely driven by investor psychology since there are no true underlying fundamentals backing its price rise other than aggressive buying due to limited supply.

The key to success when using Elliott Wave analysis is to get the wave count right. Traders who use this technique believe the market moves in waves and that price action is primarily driven by groups of five waves. It takes years to master Elliott Wave analysis, but some cryptocurrency traders feel they have a good enough grasp of the basics to apply it to markets such as Bitcoin.

Stochastics and Relative Strength Index (RSI)

Stochastics and the Relative Strength Index (RSI) are known in the technical analysis field as oscillators because they move between a low of 0 and a high of 100. Some cryptocurrency traders use them to determine the strength of a trend or to predict tops and bottoms because of overbought and oversold conditions. As Bitcoin prices often trade in an overbought or oversold condition due to its high volatility, RSI indicator signals traders to enter or exit a certain position.

They both work under the premise that prices should be closing near the highs of trading range during upswings and toward the lower end of a trading range during downswings.

During a prolonged move down, the oscillators will near 0, indicating that a bottom may be near. During a prolonged move up, the oscillators will near 100, indicating that a top may be near. In the attached graph, Bitcoin is currently at 81.92 (RSI), meaning that Bitcoin is overbought and a correction is expected.