Howprices will move in financial markets . Especially the fact that the prices in the cryptocurrency markets are highly variable brings with it many strategies that can be followed. Crypto technical analysis is one of the methods used by many users in determining these strategies.
In this article, we will discuss the technical analysis method in cryptocurrencies and clarify this concept, which may be confusing for many people at first. We can start by explaining what the concept of cryptocurrency technical analysis means.
What is Technical Analysis?
Technical analysis is an analysis method used in financial markets. By using this method, past price movements are examined and future price movements are tried to be predicted. In technical analysis, price movements are mainly analyzed using data such as charts, chart patterns, technical indicators and mathematical calculations.
There is a basic assumption in technical analysis: Past price movements affect future price movements. Therefore, when examining price charts, investors attempt to predict the future direction of the market using elements such as trends, support and resistance levels, patterns and technical indicators.
The purpose of technical analysis is to discover suitable buying or selling opportunities by identifying regularities and repeating patterns in price movements. This method, in addition to cryptocurrencies; It can also be used in various markets such as stocks, foreign exchange, commodities and other financial instruments.
Technical analysis is a method and there are different types under this method. In the following parts of our article, we will talk about the most well-known types of technical analysis in cryptocurrencies. Before this, ‘how to do cryptocurrency technical analysis?’ let’s look at this.
How to Perform Cryptocurrency Technical Analysis?
There are some basic steps that can be used when performing cryptocurrency technical analysis. These steps are as follows.
- Chart Review: Graphs showing the price movements of cryptocurrencies can be examined. The most commonly used chart types are candlestick charts, line charts and bar charts.
- Trend Identification: It is important to identify trends when examining charts. Trend lines, moving averages and other technical indicators can be used to understand the overall trend of an asset’s price.
- Determination of Support and Resistance Levels: Support levels represent the points where the price falls and has difficulty falling further, and resistance levels represent the points where the price rises and has difficulty rising further. These levels can be used to predict where the price might go.
- Using Technical Indicators: Technical indicators use mathematical calculations to analyze price movements. The most popular indicators include moving averages, MACD (Moving Average Convergence Divergence), RSI (Relative Strength Index) and Stochastic Oscillator.
- Recognizing Patterns: Recognizing certain patterns and formations on charts can provide clues about future movements of the price. For example, formations such as the inverted head and shoulders formation and double bottom are frequently followed.
- Risk Management: When doing technical analysis, it is important to always pay attention to risk management. Potential losses can be limited by using risk management strategies such as stop- loss orders and position size control.
- Examining Trading Volume: Trading volume is also an important criterion in predicting price movements. Volume increases or decreases can provide information about the strength of price movements.
Technical analysis is a way to predict prices in cryptocurrency markets, but no analysis method provides definitive results. Therefore, it is important to use multiple analysis methods and monitor the market carefully.
What are the Types of Crypto Technical Analysis?
There are many different methods and tools for cryptocurrency technical analysis. Here are some common types of technical analysis:
Candlestick Charts
One of the most preferred charts by investors using technical analysis in the cryptocurrency market is candlestick charts. When we look at the history of candlestick charts, we see that they were developed by the Japanese in the 17th century, using them in the rice trade. It is used to analyze changes in prices today. Of course, some data is required for users to benefit from these graphs. In order for a candlestick chart to emerge, the opening, highest, lowest and closing levels occurring in the desired time period are needed.
Candles provide detailed information about the market on a daily, weekly, monthly or yearly basis. Often a positive move will be shown in green on the candlestick chart, while a negative move will be shown in red.
Long green candles that appear when examining candlestick charts are a sign of an uptrend. This means that there is usually an increase in the time between the opening and closing of the market price and there are many cryptocurrency purchases. Long red candles indicate a downtrend. What is meant here is that prices remain at a lower level at the closing compared to the opening. From this situation, it is understood that investors are selling their crypto assets.
If we want to make a general sense, long candle bodies indicate that price movements occur in an aggressive structure, and on the contrary, short candle bodies indicate slight price changes.
Trend Lines
One of the most important elements in technical analysis is trend lines. Trend lines show the direction of movement of the cryptocurrency under consideration. Of course, some analysis is needed to do this. The high volatility makes it possible to make sense of the fluctuations in the trend line.
Trend lines moving up or down represent an increase or decrease in price. The formation of horizontal lines indicates that the fluctuation in prices is lower. Interpretation of the trend line is also very important. By estimating the direction of the trend line, an upward or downward trend can be determined and the investment can be directed accordingly.
Support and Resistance
Another method that people who will perform technical analysis should pay attention to is support and resistance levels. By determining support and resistance levels, investors can predict future price movements and determine the strategy they will create when investing. If you want to make a ‘Stop-limit’ purchase or sale transaction at a price determined against unexpected market movements, this method is among the main technical analysis methods that need to be learned.
The support level indicates that crypto investors have a high desire to purchase at this point. In cases where the support level occurs, it can be predicted that the value of the cryptocurrency is low and its price will increase with purchases.
For the resistance level, it can be said that it is the opposite of the support level. At this point, investors think that the cryptocurrency is overpriced. They predict a decline from this point on. After the price of the cryptocurrency reaches this point, a decline is expected and there is no demand for excessive supply increase. Therefore, prices begin to fall. Sometimes, breaks may occur at support and resistance levels. If the level that was resistance at the beginning of the analysis becomes support as the chart advances, the trend may strengthen. Ultimately, technical analysis requires looking at multiple figures to identify trends.
Choosing Time Frames
When dealing with technical analysis, it is possible to choose a time period (minute, hour, day, month, year). The choice to be made must be in accordance with the commercial strategy. If you are a short-term investor, a short time period should be chosen. This ensures that opportunities are not missed. If a long-term investment strategy is aimed, a chart time can be determined over days, weeks or even months. This allows analysis to be made over a wider period of time.
Indicator
In technical analysis, the concept of indicator in our language is translated as ‘indicators’. They are mathematical results that provide data about the direction or trend of the price. Indicators are technical analysis tools that guide investors about changes in the cryptocurrency market. To put it simply, it examines the past movements of prices and their current situation.
oscillators
Oscillation literally means oscillation. They are indicators that act within certain limits. It shows oversold and overbought levels. It can indicate the best sales area of a cryptocurrency that is in an uptrend, and it can also provide data in the opposite case. In some cases, it can also give trend-independent results. Most of the time, it may not be enough on its own.
Moving Averages
Moving averages are an important element of technical analysis that investors use when managing their risk management. Moving averages, which are the first indicators that come to mind, are one of the biggest helpers when performing technical analysis.
Price movements appear in the form of zigzags when examined on a line chart. Moving averages are ‘ lagging ‘ indicators. This delay helps avoid potentially erroneous signals. It softens the appearance of instantaneous increases or decreases on the chart because it averages them.
Moving averages, which provide analysis in all market conditions and help determine investment strategies, have types suitable for use in a rising market or a horizontal market. The primary purpose of moving averages is to determine trends. Being above the moving average indicates a rising trend, while being below it indicates a falling trend.
Bollinger Bands
Bollinger bands are achieved by placing above and below moving averages. It is an analysis tool that is shaped according to the direction the market will take. Bollinger band narrows and takes on a pipe appearance when price movements are uncertain. If the market shows its direction, the channel will widen and may indicate that the market is not indecisive. Thanks to Bollinger bands, it can be understood whether the prices are high or low.
Relative Strength Index (RSI)
In its simplest form, it creates overbought or oversold signals. It produces values between 0 and 100. When these values fall below 30, it gives the message to buy and when it rises above 70, it gives the message to sell. It may be useful to determine whether there will be a relapse in the future.
These are just some of the types of crypto technical analysis, and there are many different tools and methods used in technical analysis. Each is effective to varying degrees across different market conditions and asset classes.
What is the Importance of Technical Analysis?
The technical analysis methods mentioned in this article generally provide more meaningful and consistent results when used together. However, no matter what, it is not possible to know price movements with certainty. The biggest reasons for this include news in the media, developments in the world, price manipulations, conversations on social media and similar situations.
In order to make investments as efficient as possible, learning crypto technical analysis methods and applying the methods will contribute to achieving positive results.
The concept of technical analysis is ‘ ceteris paribus ‘ in economics. It works on the principle of ‘paribus ‘ (all variables are constant). It provides results independent of the impact of statements and regulations on the cryptocurrency market. Therefore, it is beneficial to make investments by following current developments without ignoring this situation.
Where to Get Ready Crypto Technical Analysis Review?
As a result, as a result of technical analysis, information is obtained about the past movements of a cryptocurrency and it becomes easier to predict the movements it may make in the future. At this point, you can follow the research carried out by the ICRYPEX Analysis supplement on the ‘daily newsletter‘ and ‘weekly newsletter‘. In addition, instant cryptocurrency analysis reviews can be accessed by following the Twitter account with the username ICRYPEX Analysis.
ICRYPEX’s expert team, you can follow cryptocurrency and macroeconomic evaluations and always have an up-to-date perspective.