Technical Analysis Overview

Technical analysis involves the use of past crypto movements to determine the future. Here is all you need to understand about technical analysis;

What is Technical Analysis?

The only way to make use of technical analysis is when you understand what it is. Technical analysis is all about using real data to determine future price movements. It looks into all the past market behavior of the crypto. Such market behavior includes trade volumes and price movement.

Technical analysis also involves observing the coin's strengths and weaknesses. It is all about knowing when the market will be on either a bearish and bullish run. The information allows for buying and selling at the right time. The end goal is to make a profit.

Technical analysis works due to both psychological and reflexive actions on the participants. Most traders tend to make decisions based on price movements. They buy at the prospect of a value increase while selling when the price goes down.

One can easily observe the market trends. After some time, every other trader would be on the same trend. The markets tend to be sustainable in the long run.

Still, you must allow some chance for the impossibility. For example, no one in the markets would have ever predicted the possibility of coronavirus. Yet it has turned out to be a massive market shifter. Several other factors, like media and governments, still have an impact on the market changes.

Technical analysis also applies to other assets like forex, commodities, and stocks.

Now that you understand technical analysis, there are more concepts to learn. Which brings us to the first concept;

Trend Lines

The volatility in crypto means the value of the assets is ever-changing. The trend lines help determine the market movements. The crypto trader needs these market movements to make investment decisions.

The trend lines help determine the lows and highs of crypto. Most traders would purchase the coins at the lows. They would then observe and offload at the highs. There are also sideway trends with no significant changes.

The trend lines determine the long- and short-term investments. Short term traders want to make an easy killing. They are always after the thrill of price changes. Also, they are most affected in the case of a boring period.

The long-term traders, however, look for the highs in the eventuality. They are not bothered with any price changes in the present. The inflation never affects them as long as the coin will get to the eventual value. For example, some have predicted Bitcoin to hit $20k by the end of the year. The long-term investors would only be looking for that eventuality.

Support and Resistance Levels

These are the other essential factors after the trend lines. The support and resistance levels are all about demand and supply. The support is an indication of rising demand. At this point, most traders believe the coin is undervalued. They, therefore, buy much of it. The currency will, in turn, increase in value due to the laws of demand and supply.

The resistance level is the opposite of the support level. At this point, the traders understand the coin is overvalued. They would start selling the coins. Most of the traders are ever looking to make profits. The more they sell, the market becomes flooded. Too much supply and less demand lead to a value decline.

Most of the cryptos have struggled against the resistance levels. When an asset goes past it, then there is a higher possibility of sustainable values. Bitcoin, for example, has had some excellent runs this financial year. It has had the $10k as the traditional resistance value. Yet, this year it has rallied to beat the resistance.

You have to stay careful using technical analysis to observe resistance levels. There are cases of manufactured levels to trigger market movements. Rely on various sources before making a decision.

Crypto whales have also learned how to trigger resistance levels. They understand the demand and supply. They would create an artificial decline in price. The lower traders would sell their assets, looking to avoid losses. The whales then purchase at lower costs while keeping the rise.

How to Trade with Trends

The main reason to use technical analysis is to make the correct trading decisions. You don't want to be caught out at any level. The best way to use the analysis is by observing the lowest and highest points.

Using the data, you need to be holding the coin when it's above the lowest point. Still, there is a need to look into a longer duration. While there might be a downward trend shortly, the longer trend might be upward.

Take the time to observe results. The changes in crypto can happen within seconds. The trends also require emotional stability.

Bottom Line

Any trader that wants to make it in crypto must understand technical analysis. It is the leading guide for anyone looking for an assured return on investments. It helps the trader identify upward and downward market trends. It also allows one to determine the support and resistance levels.

Still, nothing is given in the investment world. Governments, the media, and pandemic have a role in the crypto price movements. Other than the technical analysis, it would help if you had additional analyses. Look into various market trends for a more accurate market movement.