How to Apply Technical Analysis to Cryptocurrencies

[Negotiation]

There are two primary methods used to make investment decisions:

Fundamental analysis involves analyzing a company’s financial statements to determine the fair value of the business
Technical analysis attempts to understand the market sentiment behind price trends by looking for patterns and trends to determine future price movements.
The price of an asset reflects the sum total knowledge of all market participants; their analysis, views and actions.


What is Technical Analysis?

Technical analysis is the study of statistical trends, collected from historical price and volume data, to identify opportunities for trade. Technical analysts observe patterns of price movements, trading signal and other analytical tools to evaluate the strength and weakness of an asset.  

Technical Analysis can be applied to any security with historical trading data such as cryptocurrencies, forex, commodities and stocks.


Why does Technical Analysis work?

A chart of prices and volume represents all the past decisions taken by market participants (buying and selling). This information will, in turn, affect future participant decisions in two ways:

Psychological: What you did in the past affects how you approach future situations. For example, many traders tend to focus on the price at which they bought an asset, and if it declines, they want to sell when it reaches break-even again.

Reflexive: Some traders identify trends and chart patterns which are common, and act accordingly (buying or selling). If a sufficient number of participants follow the same strategy, it is expected that these chart patterns will follow the expected outcome and that the trend will likely to be sustained by more and more participants joining the trend.

What are trends?

There are three possible trends:



1.Uptrend: In an uptrend, the asset is going up making, higher highs and higher lows.
2.Downtrend: In a downtrend, the asset is going down making, lower highs and lower lows.
3.Sideways trend: In a sideways trend the asset trades in a horizontal channel

Sometimes traders also use the terms “Bearish” and “Bullish” to refer to a trend. Bullish comes from the bull, who strikes upwards with its horns, thus pushing prices higher and bearish comes from the bear, who strikes downward with its paws, thus driving prices down.

What are resistance & support?

Movements are not linear, the price will face resistance as it goes up or support as it goes down.

‍Resistance: A level where an uptrend can be expected to pause or rebound that indicates a concentration of sellers.‍

Support: A level where a downtrend can be expected to pause or rebound due to a concentration of buyers.




When the resistance level is broken it usually becomes a support level and vice versa.
In technical analysis, support is often used as an entry point and resistance as an exit point. In the case of strong trends, the price can go through support/resistance without stopping.


Advanced Technical AnalysisTools

If you’d like to go one step further in your analysis, here’s what analysts often look at:

OHLC Charts (Open-High-Low-Close):

These charts display bars that are known as ‘candlesticks’. A candlestick's shape varies based on the relationship between the day's high, low, opening and closing prices.

Bullish candle (can be green or white): The close is above the opening‍‍
Bearish candle (can be red or black): The close is below the opening   

 

Candlestick charting is based on a technique developed in Japan in the 1700s for tracking the price of rice but a suitable technique for trading any liquid financial asset. Candlestick can be studied individually (simple patterns) but more often used in groups (Complex patterns). The purpose of Candlestick charting is to determine the market trend.

Simple moving average
An average of the closing price of the stock over a specified number of period.

Bollinger Bands
Bollinger Bands display a graphical band (the envelope) with a simple moving average in the middle. The width of the envelope expresses the volatility.

Volatility refers to the rate at which the price of an asset can increase or decrease. A higher volatility means that the asset can potentially fluctuate rapidly within a larger range of value.

When the price moves away from the average, it is likely to have a mean reversion. Just like a spring that tends to return to its position of equilibrium, the more it is stretched, the greater the force.

Moving Average Convergence Divergence (MACD)

Moving Average Convergence Divergence (or MACD) is a trend following indicator that looks at the combination of two moving averages:

-A short-term moving average
-A long-term moving average
These two moving averages are combined to identify what is the current trend and if there is a change in the momentum.

The MACD lines displayed below can be interpreted as follows:

-If the blue line (MACD line) is above the orange line (Signal line), the momentum is bullish.
-On the contrary, if the blue line is below the orange line, the momentum is bearish.
-When the lines diverge, it denotes a strengthening of the current trend while a convergence shows a trend reversal.
-When the lines cross, it is likely that the change in momentum is confirmed.


How news can affect asset prices?

One of the most effective means of influencing the public is media. Breaking news and headlines may instill panic and fear in a mass manner, as well as euphoria. The impact of news on the cryptocurrency market is perfectly illustrated by the high-profile events in the world. In September 2017, the Chinese authorities have banned  ICO which led to the collapse of the bitcoin price — from $ 5000 to $ 3000. However, there is always another side of the coin, Bitcoin spiked when eBay and Dell said they considered accepting Bitcoin.


Article Source: https://www.swissborg.com/blog/how-to-apply-technical-analysis-to-cryptocurrencies

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[Mr.Ease]

Nice article... But with swings of 10% going on near a daily basis, I doubt much technical analysis will help.

Also, crypto is manipulated sometimes.

Basically, the answer could be in those charts but then it might not be 

[Baofeng]

This is definitely good for newbies who wanted to learn technical analysis. At least it will open their eyes if they really wanted to use it to before putting their money on the market. Of course it's not a guarantee that technical analysis is always correct, but at least it could serves as a guide for predicting those wild educated guesses we always hear in this community.

[Bitum]

I do not think much of TA, though it may work (but that's a big question) on regulated markets, then crypto market can not do that at all, because the market is very manipulative. It is better to analyze fundamental factors. That's just my personal opinion.

[JeromeTash]

This is an awesome article especially for someone who would love to learn about technical analysis.
My issue is this article does not cover all parts of technical analysis. Other very important indicators such as RSI, EMAs are missing

[Xardasim]

Nice article... But with swings of 10% going on near a daily basis, I doubt much technical analysis will help.

Also, crypto is manipulated sometimes.

Basically, the answer could be in those charts but then it might not be 

Nevertheless trade is still going on and there are few ways for estimation, which one of them is technical analysis. Manipulations and unexpected movements are not the reason to give up. We can ignore this since the market is still in the formation phase. Besides, we might prefer that instead of money managed by someone. When the obstacles ágainst cryptocurrency are removed, the positive differences will certainly increase. Imagine what will happen if the chance offered to paper money is offered to the crypto.

[stfN2128]

really nice article for newbies to get a small insight view in technical analysis. you missed one thing which should every newbie learn from the start.
most important thing for me when it comes to trading is train your mind. the best technical analyst will fail (when he is trading) if his mind isn't "trained" for trading. analysis and trading isn't really hard. in the theory there are just some rules you have to follow. its our mind which fucks up when we start trading you don't want to lose, you wanna be always right and so on..

[peter0425]

I'm not a technical guy, but indeed you need some understanding of it. I usually see other TA experts here in the community, it is a behold to see what those guys have to say and respect to them because some of them have predicted the price movement while others is failed. So it is a hit or miss, but nevertheless a good understand is better than nothing so thank you OP for sharing it.

[Oilacris]

Nice article... But with swings of 10% going on near a daily basis, I doubt much technical analysis will help.

Also, crypto is manipulated sometimes.

Basically, the answer could be in those charts but then it might not be 

Neither both ways.This is why technical isnt really a reliable thing for you to depend on yet price can swing up more than you anticipated with your TA's.

OP you made a good thread showing off detailed informations about TA's ,good for those newbies or who do just recently started to understand these tools.
These are helpful but should not heavily relied on its better if it would be accompanied with some fundamentals.

[sandra_x]

Technical analysis looks very nice on paper and works better with other asset class, but with bitcoins and cryptocurrencies, everything sort of go with the wind. We had bitcoin almost making multiple death crosses a day or 2 ago and show all the "expert' analysis by the professionals, but bitcoin kind of ignored all and went to touch 11k, they experts 'modified' their stance, then bitcoin dropped. The truth be said, bitcoin does its own thing and TA alone doesnt stand a good  chance to make you money. I go with the fundamentals at the moment. One tweet from Trump can ruin every TA analysis

[Negotiation]

Nice article... But with swings of 10% going on near a daily basis, I doubt much technical analysis will help.

Also, crypto is manipulated sometimes.

Basically, the answer could be in those charts but then it might not be 

Neither both ways.This is why technical isnt really a reliable thing for you to depend on yet price can swing up more than you anticipated with your TA's.

OP you made a good thread showing off detailed informations about TA's ,good for those newbies or who do just recently started to understand these tools.
These are helpful but should not heavily relied on its better if it would be accompanied with some fundamentals.

I just share start to beginner learn practices  huge of thinking effect this market not only depended on fundamentals or technical From now on, you can earn some experience. It is not right to do more than that Many more things work in the market.

[bitgolden]

This is definitely good for newbies who wanted to learn technical analysis. At least it will open their eyes if they really wanted to use it to before putting their money on the market. Of course it's not a guarantee that technical analysis is always correct, but at least it could serves as a guide for predicting those wild educated guesses we always hear in this community.

Bro, we need to always remove this mentality that things like this are for newbies, we have lots of traders that has been in trading for long that honestly still finds it very difficult to cope with technical analysis till now, because they lack the understanding of its usage, so any opportunity like this to get a simple breakdown of it will highly be appreciated to them.

This little article you feel is for newbie, there might be a particular point in it that even the pro trader will pick interest in and apply it to his trade, it is absolutely impossible for anyone to know it all, the market is verse and keeps updating, so we also need to keep updating ourselves. Most people that know how to use TA still have their own different strategies, so this might be a good one for someone.

[figmentofmyass]

Nice article... But with swings of 10% going on near a daily basis, I doubt much technical analysis will help.

on the contrary, bitcoin's volatility just makes it so we can enter/exit trades more often. TA still works just like any other market.

Technical analysis looks very nice on paper and works better with other asset class, but with bitcoins and cryptocurrencies, everything sort of go with the wind. We had bitcoin almost making multiple death crosses a day or 2 ago and show all the "expert' analysis by the professionals, but bitcoin kind of ignored all and went to touch 11k, they experts 'modified' their stance, then bitcoin dropped.

even good traders/analysts are wrong all the time. that doesn't mean TA doesn't work per se, it just means 1. markets are unpredictable and profitable methods don't work 100% of the time and 2. lots of traders don't apply TA correctly.

it looks like the push to $11k was just a bull trap after all. we're back in the $9000s again as we speak.

[Maslate]

technical analysis will work well in forex and stock markets crypto is very volatile and unpredictable i am not saying that it wont work but chances are less  

But have this volatility makes crypto very popular and giving more chances to become profitable. Only TA's aren't being used exactly, its because not all traders have that knowledge to its neither. Even me, I really don't use TA in my trades as I will actually be following the flows and do some market picks.

[justdimin]

I think the main point here is that indicators and analysis comes from the fact that "when last time we were in this position x happened". So, it is always retrospective working towards future which is not always right. I mean it does work sometimes but sometimes it doesn't. We can't guarantee it and we have seen plenty of charts and analysis that turned out to be wrong.

Hence, I think the most important fact that should be stated here for people who want to learn how to read charts and how to make their own analysis that it will not be correct all the time. Of course there are times when history repeats itself and whatever happened in the past will happen again in the same circumstances. But there are times when it does just the opposite in reaction and then you are in big trouble.

[xamxam]

I like the way you explained about technical analysis to cryptocurrencies. The illustration of yours was quite cleared and understandable to me, especially in the uptrend and downtrend of the volatility price value of the token in the market. Moreover, TA is much more giving benefits any of the individual traders whether in crypto or Forex trading. And of course you can only this if you are making trade in the exchange.

[MetalGear]

There are two primary methods used to make investment decisions:

Fundamental analysis involves analyzing a company’s financial statements to determine the fair value of the business
Technical analysis attempts to understand the market sentiment behind price trends by looking for patterns and trends to determine future price movements.
The price of an asset reflects the sum total knowledge of all market participants; their analysis, views and actions.


What is Technical Analysis?

Technical analysis is the study of statistical trends, collected from historical price and volume data, to identify opportunities for trade. Technical analysts observe patterns of price movements, trading signal and other analytical tools to evaluate the strength and weakness of an asset.  

Technical Analysis can be applied to any security with historical trading data such as cryptocurrencies, forex, commodities and stocks.


Why does Technical Analysis work?

A chart of prices and volume represents all the past decisions taken by market participants (buying and selling). This information will, in turn, affect future participant decisions in two ways:

Psychological: What you did in the past affects how you approach future situations. For example, many traders tend to focus on the price at which they bought an asset, and if it declines, they want to sell when it reaches break-even again.

Reflexive: Some traders identify trends and chart patterns which are common, and act accordingly (buying or selling). If a sufficient number of participants follow the same strategy, it is expected that these chart patterns will follow the expected outcome and that the trend will likely to be sustained by more and more participants joining the trend.

What are trends?

There are three possible trends:



1.Uptrend: In an uptrend, the asset is going up making, higher highs and higher lows.
2.Downtrend: In a downtrend, the asset is going down making, lower highs and lower lows.
3.Sideways trend: In a sideways trend the asset trades in a horizontal channel

Sometimes traders also use the terms “Bearish” and “Bullish” to refer to a trend. Bullish comes from the bull, who strikes upwards with its horns, thus pushing prices higher and bearish comes from the bear, who strikes downward with its paws, thus driving prices down.

What are resistance & support?

Movements are not linear, the price will face resistance as it goes up or support as it goes down.

‍Resistance: A level where an uptrend can be expected to pause or rebound that indicates a concentration of sellers.‍

Support: A level where a downtrend can be expected to pause or rebound due to a concentration of buyers.




When the resistance level is broken it usually becomes a support level and vice versa.
In technical analysis, support is often used as an entry point and resistance as an exit point. In the case of strong trends, the price can go through support/resistance without stopping.


Advanced Technical AnalysisTools

If you’d like to go one step further in your analysis, here’s what analysts often look at:

OHLC Charts (Open-High-Low-Close):

These charts display bars that are known as ‘candlesticks’. A candlestick's shape varies based on the relationship between the day's high, low, opening and closing prices.

Bullish candle (can be green or white): The close is above the opening‍‍
Bearish candle (can be red or black): The close is below the opening   

 

Candlestick charting is based on a technique developed in Japan in the 1700s for tracking the price of rice but a suitable technique for trading any liquid financial asset. Candlestick can be studied individually (simple patterns) but more often used in groups (Complex patterns). The purpose of Candlestick charting is to determine the market trend.

Simple moving average
An average of the closing price of the stock over a specified number of period.

Bollinger Bands
Bollinger Bands display a graphical band (the envelope) with a simple moving average in the middle. The width of the envelope expresses the volatility.

Volatility refers to the rate at which the price of an asset can increase or decrease. A higher volatility means that the asset can potentially fluctuate rapidly within a larger range of value.

When the price moves away from the average, it is likely to have a mean reversion. Just like a spring that tends to return to its position of equilibrium, the more it is stretched, the greater the force.

Moving Average Convergence Divergence (MACD)

Moving Average Convergence Divergence (or MACD) is a trend following indicator that looks at the combination of two moving averages:

-A short-term moving average
-A long-term moving average
These two moving averages are combined to identify what is the current trend and if there is a change in the momentum.

The MACD lines displayed below can be interpreted as follows:

-If the blue line (MACD line) is above the orange line (Signal line), the momentum is bullish.
-On the contrary, if the blue line is below the orange line, the momentum is bearish.
-When the lines diverge, it denotes a strengthening of the current trend while a convergence shows a trend reversal.
-When the lines cross, it is likely that the change in momentum is confirmed.


How news can affect asset prices?

One of the most effective means of influencing the public is media. Breaking news and headlines may instill panic and fear in a mass manner, as well as euphoria. The impact of news on the cryptocurrency market is perfectly illustrated by the high-profile events in the world. In September 2017, the Chinese authorities have banned  ICO which led to the collapse of the bitcoin price — from $ 5000 to $ 3000. However, there is always another side of the coin, Bitcoin spiked when eBay and Dell said they considered accepting Bitcoin.


Article Source: https://www.swissborg.com/blog/how-to-apply-technical-analysis-to-cryptocurrencies

This article would be very helpful for both newbie and long time traders and investors for they will be able to familiarize themselves with technical analysis, and aside from that they will be able to know whether to apply and use it for taking their trades into places. But still, Technical analysis aren't always reliable, studying all types of analysis like fundamental analysis and sentimental analysis, what differs them and what they think will be effective for them. Technical analysis and all, but their ability to weigh things and control their decisions will be the one who will drive the future of their.

[adroitful_one]

This is a good starting point for new people. However, you really should probably explain when people should buy on these indicators. All you do is explain what the technical analysis tools are. You never really explain when people should buy or sell using them. For instance, on Bollinger bands, if the candle is crossing the bottom line, it's probably a good time to buy and if a candle is crossing the top band, it's probably about to come down in price a little bit, so you should sell.

[el kaka22]

This is a good starting point for new people. However, you really should probably explain when people should buy on these indicators. All you do is explain what the technical analysis tools are. You never really explain when people should buy or sell using them.

That would be up the understanding and conclusion of traders. A trader needs to compare how an indicator works and how market reacts at those times. It means no one could spot you out the exact buy/sell levels but they usually show you how to interpret an indicator and from that we need to derive how to make use of those indicators and charts. This is how usually all technical analysis will work.

Technical analysis aren't always reliable, studying all types of analysis like fundamental analysis and sentimental analysis, what differs them and what they think will be effective for them.

No analysis will be perfect and versatile because market fluctuations are purely based on the mentality of each and every trader hence no mathematical thing could predict how a trader will think and decide. This is the reason bitcoin is good for any trader for simply buying and holding to get enormous profits without any analysis.

their ability to weigh things and control their decisions will be the one who will drive the future of their.

Trading needs lots of such rules and disciplines whereas holding kind of trading doesn't. You may simply invest and wait for huge profits if you trade only bitcoins.

[jmigdlc99]

Nice post, great for a general overview of technical analysis.

However, the more important question here i think is whether or not it is valid to use technical analysis on something so volatile as bitcoin? I mean to say bitcoin is so vulnerable to news and rumors so long as you have someone saying "china will ban bitcoin" or "craig wright is the fake satoshi" or "bitcoin halvening is next year" or "bitcoin ETF is to be approved" and you see everyone rushing to trade. Technical analysis goes straight out the window.

Most of the time just it's simply just better to "buy the rumor and sell the news."