Technical Analysis of Cryptocurrency
Getting rich with Bitcoin and Altcoins – let’s be honest: for many of us this was the first motivation to Bitcoin and altcoin trading.
But as we all know, not everyone can be a winner since financial trading is a zero sum game in the first place. Where there are winners, there must also be losers, on the other side of the scale. The winners in crypto trading are those who have a high level of professional trading knowledge and who are good business people who can leave their emotions out of the game.
One important aspect of that trading knowledge is technical chart analysis. Pro traders know how to read and interpret price charts in order to find buy or sell signals. So if you are serious about this extraordinary chance to make money, then learning TA is obligatory.
Since the topic technical analysis is quite extensive also in the context of an introduction, you should look for a source that explains the most important tools and indicators in a simple and compressed way, so you can easily learn it on the side within a month. Our best tip is the crypto trading book for beginners, with the best and most vivid TA chapter you can find in a book out there. On top this ebook provides about 10 trading strategies you can use as soon as you understand technical analysis of cryptocurrency charts.
The tool we mostly use for TA is TradingView. This is a platform on which various cryptocurrencies can be analyzed. It’s great that you can also test strategies here and present the charts and the trading ideas to the community.
Of course there are several other tools. On this page you find the most popular ones.
What is Technical Chart Analysis?
In short, the technical analysis or chart analysis is the investigation of past price movements with the aim of being able to make statements about further price developments. It differs from fundamental analysis, which tries to recognize the real value of an asset and use it as the basis for an investment.
Fans of fundamental analysis and representatives of efficient market theory (the assumption that the current market price has already captured all relevant information and that the analysis methods mentioned are therefore not effective) often criticise the sense of technical analysis. The legitimate question is raised as to whether technical analysis is at all capable of predicting dramatic market movements initiated by unforeseen events such as in case of the DAO attack.
The honest answer on that matter is: technical analysis cannot do that. Ultimately, this doesn’t work by its very nature, since it would imply that such unpredictable events could already be foreseen within previous price movements.
What technical price analysis can provide is an estimate of how strong current trends are and whether or not a trend reversal can be expected in the near future.
One approach to correctly understanding technical analysis of price developments is to understand them as a kind of “mass psychology”. In general, technical price analysis is nothing more than an attempt to analyse the behavior of the masses, to determine the strength of buyers and sellers (i.e. bulls and bears) and to estimate future behavior.
Even if the behavior of individuals is not predictable by its very nature, trends can be identified in the behavior of the masses. If a trade promises large profit it is probable that many humans decide accordingly. The same applies vice versa: if many people decide to buy, it can be assumed that demand will continue to rise. People are herd animals.
In order to stand out from the herd, it makes sense to be able to predict developments and even more the end of existing developments.
Fundamental analysis, i.e. the long-term valuation of an investment, and technical analysis do not have to be mutually exclusive. If, for example, a cryptocurrency is experiencing an incredible rally according to the technical analysis, but does not have a great value according to the fundamental analysis, a experienced trader knows that he should jump out quickly as soon as he finds certain sell signals in the chart.
A warning has to be expressed at this point: Especially in the Altcoin market there are many currencies which have a very small market capital. In such a case it’s pretty easy to influence the price development by a large purchase or sale.
It often happened that traders lose their money because they invested in a market controlled by a group of rich people on the basis of false signals. Here appropriate caution is needed. You can also make money from such situations, but you should keep a close eye on the price in order to react quickly to changes in trends.
But let’s get back to technical analysis of crypto charts – the following articles will help you to understand basic TA tools every trader has to know.
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