Crypto traders use several analytical instruments to study and assess fluctuating trends in the cryptocurrency market. Most new traders who are making their way into the world of cryptocurrency experience difficulties after purchasing various cryptocurrencies at the wrong market time. To prevent such undesirable trades, technical analysis is a crucial tool that has helped multiple traders to make profitable trades. Technical analysis is the most common approach used to understand market outlook in order to make successful investments. This strategy is useful in adopting wiser and more informed trading predictions. The technical analysis considers the history of a cryptocurrency based on its trading volumes and price charts. Technical analysis in cryptocurrency can be integrated with other analysis techniques to improve its efficiency. Some market indicators are primarily concerned with determining the potency of a trend while others are concerned with identifying current trends. The most applied technical analysis signals in cryptocurrency are; momentum indicators, trendlines and moving averages among others.
The concept of Technical analysis in cryptocurrency is very important because it enables traders to understand various trading ideas. The successive waves used by cryptocurrency investors will probably trail in direction of the last wave. So in other words, what has already occurred can help you understand what might occur in future. Also, human conduct in the market is very predictable. Use these trading ideas to plot a simple and quick prospective path that price will follow.
As an achieving cryptocurrency trader, you should understand that technical analysis deals with charting and use of technical indicators to forecast the probability of a market trend based on volume data, prevailing and historic price. In this case, we are emphasizing that technical analysis does not involve certainty but establishing the possibility of a future trend using past trends.
In most cases, technical analysis may be difficult to assess and apply even though it narrows the analysis of supply and demand to determine price direction of a certain cryptocurrency. As opposed to fundamental analysis, technical analysis deals with conceptualizing price movement rather than evaluating the fundamental behaviors of a cryptocurrency. If you concentrate on understanding the most basic elements of technical analysis, you will gain a set of instruments that will enable you to become a better investor in the long run.
For new cryptocurrency traders, technical analysis is complicated in nature until you dedicate more time to learn the entire technique. As a beginner, you may experience a daunting period observing others perform technical analysis in social media such as Facebook, Instagram, and other platforms. Actually, there is no easy method and trick to do technical analysis hindering you from making massive profits when trading cryptocurrency. For established cryptocurrency traders who have regularly practiced technical analysis, there are four significant things to avoid while trading and they include;
Taking Resistance and Support Lines As Particular Points
Resistance and support lines are specific points whereby sellers and buyers might enter the market. When plotting these lines, it is relevant to analyze them as common quarters of trading as opposed to points whereby the trade will begin or end. For instance, if you take your resistance and support lines as break-or-make regions, you convert yourself to a simple target for market makers. This has an implication that they will make a pip above support or below resistance line to stimulate your stop loss hence pulling the price back within the range that will eventually affect your region. Such action will neither be fun nor profitable especially after losing several trades. To avoid this, you should have exactness while drawing your lines and elastic when price begins to integrate with them. Alternatively, you can apply higher time frame charts to avoid such normal ‘fakeouts’.
Avoid Forcing the Cryptocurrency Trading System
While trading cryptocurrency, you need to understand the most effective technical setups to apply in order to avoid forcing trend lines. The purpose of trend lines is to show traders typical direction of a cryptocurrency coin at a given time. In most cases, the asymmetrical risk will not be easily noticeable. This means that reward setup must be considered in every cryptocurrency asset you chart. As a successful trader, keep in mind that failure to take a trading position is also a favorable move because it avoids landing on unknown risks. Many traders tend to invest in their favorite cryptocurrency coins without understanding that such positions will not always be secure for a trade.
During technical analysis, many beginning traders tend to lose their positions because of incapability to trade and chart using price action only. The most recommended way of learning is using charts without indicators. Addition of indicators is appropriate to your technical analysis because it enables you to understand the behavior of price in relation to your lines. To make your trades safer, master trade using price action first and eventually introduce indicators gradually.
Evade Using Larger Time Frames
Application of low time frames is a key factor to achieving successful and profitable cryptocurrency trades. Basically, most DMs and charts are ideal once traded in an hour frame or less than that. Using 1 week or day frame to learn trend and price history of an asset will not provide useful information to promote your analysis. Using short time frames will not provide comprehensive information that will make you to forecast trades successfully. The best option is to use long time frame charts to understand the trend and therefore trade using a short time frame.
Technical analysis is the fundamental tool for cryptocurrency traders to learn and adopt useful trading ideas. After understanding several technical analysis skills, integrate them with different styles based on the current trend and price history of the cryptocurrency market. Even though technical analysis does not give completely accurate trend prediction, it will give useful information that will lead to successful trades.