How Does Technical Analysis Work in Crypto Trading?

Updated on January 15, 2022


As you know that cryptocurrency is a volatile market, you need to follow a good strategy to earn money from the market. Many traders use news, current events for investing money in the market. Whereas some people refer to fundamental analysis for investing, generally for long term investments. Some traders use past price movements to predict the future and prepare a strategy.

However, most of the traders in the crypto market refer to technical analysis. In fact, in the digital currency market it is more convenient to combine technical analysis and news or events for best results. If you are not sure how to apply technical analysis, then read on.

Technical Analysis for Crypto Trading

One of the major advantages of technical analysis is that it fits for any type of assets. It is quite like the techniques applied for trading other asset classes such as stocks, commodities, currencies, etc. So, if you’ve ever used a technical analysis anywhere else, you can easily relate to it. If you’re just starting out, pay attention to them and try to understand them. Once you understand them, apply them to demo trading so that you have some experience of how it works.

Technical analysis uses the statistical data of past price movements. These price movements help in developing a pattern to predict the future. There are certain strategies developed by many expert traders who have made significant contributions to the trading community. Here you will learn different terminologies and how you can use them for predicting the price movements. Before that let us understand how does  

How Does Technical Analysis Work?

Technical analysis is based on a simple ideology that history repeats itself. So, in simpler terms, the previous patterns are going to repeat in the future after a certain period. In technical analysis, the real market price movements are recorded on a charting software and based on the chart you can predict what will be the next price movement using different principles and strategies. 

Terminologies used in Technical Analysis

If you are a beginner then you will get confused when you open your charting software. So, let us understand some of the important terminologies before we learn the strategy. 

Candlestick Chart: Candlestick chart is a series of candlesticks formed within the charting software which shows some data points and carries crucial information for trading. It can be annoying on the first day, because you will find rectangular red and green boxes which have wicks. A single candle represents the different price points at a time. It contains the opening price, high price, low price, and closing price which is also referred to as the OHLC data. A single candle has no meaning unless it is represented with other candles. 

Trend Line: A trend line represents the direction of price movement. There are three types of trends: uptrend, downtrend, and sideway trend.

Support and Resistance: Support and resistance are the critical level where the trend takes reversal or gives a breakout. Support is a level from where a downtrend takes reversal and uptrend starts. Resistance is the reverse of support.

Trading Volume: Trading volume is represented by the size of the candle which denotes the number of orders executed at a particular time frame. 

Trading Tips: 

  • Enter and exit near support and resistance level.
  • Trade when volume is high.
  • Follow the trend, avoid the sideway market.
  • Always set stop loss.
  • Invest the amount you can afford to lose.
  • Do not overtrade.

If you want to trade in cryptocurrencies, then you can adopt a strategy according to your own risk appetite and requirement. According to many seasoned traders, bitcoin trader provide good investment strategies in the crypto market. 

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