The price of cryptocurrencies depend on how valuable people consider it. Technical factors have an impact on Crypto Price Trends. E.g.- When the demand increases, the price rises and when the demand decreases, the price also falls down until demand appears again.
When traders want to invest in any cryptocurrency they look forward to analysing the market. The analysis helps traders make the right decisions for investment. It informs them about whether to buy, sell or hold a crypto. Crypto traders have various tools to analyze the cryptocurrency market. The 3 major types of analysis they use are: Technical Analysis, Fundamental Analysis and Sentimental Analysis.
In this article, we will learn about Technical Analysis in detail. Technical analysis helps traders get a better understanding of the market and its price trends. It helps in making predictions and trade wisely.
Technical analysis depends on past activities such as past prices, price movements etc. to detect the statistical trends. Analysts have the philosophy that history repeats itself. Data is used to predict whether the price will go up or down in the coming future.
What does Chart Represent?
Technical Analysis is represented in the form of charts. These charts can be seen as price analysis on cryptocurrency exchanges and are known as Candlesticks.
When conducting technical analysis, traders don’t want to see an average value for a 24-hour period, as it does not tell the whole story. What they want to see is how prices have changed over a period of days, weeks and months.
Candlesticks help traders in observing the full details of how the price of cryptocurrency changed over the period of one trading session. Then make comparisons to a longer span of time.
This reaches down to the shape of candlesticks. In each candlestick, it has two lines with a thick rectangle in the middle. It will almost look like a vertical rolling pin.
How to Read Candlesticks?
When prices increase in a day, the candlestick will turn green. The thin line at the bottom represents the lowest price that was recorded of the crypto during the trading session. Line at the top represents the highest price that crypto reached. The bottom of the thick rectangle shows that for how much crypto was trading when the market opened. While top of the rectangle shows the price of crypto when the market closed.
When prices decrease, the candlestick will turn red. Way of reading the chart here is the same, but inverted. The thin line at the bottom represents the lowest price for the day. Line at the top represents the highest price. The bottom of the rectangle shows the price of crypto when the market closed. While the top rectangle shows the price when the market opened.
It is a pretty good invention that is being tried for many years. When the prices in the crypto world are so unpredictable, candlestick charts are of great use for every hour analysis during the whole day.
Types of Candlesticks
There are certain shapes and types of candlesticks that have the capability of bringing opportunities for traders.
Hammer candlestick shows a long line at the bottom, which symbolizes that prices have fallen sharply before recovering to close higher. Normally, this can be understood that cryptocurrencies were being sold widely during the trading session, but buyers showed enough demand to help prices rise again.
This model can also be inverted, indicating that a long line shoots out from the top of the body. Often, this can signify that prices have been declining but could take a U-turn and rise again.
Shooting Star Candlesticks
This type of candlestick looks pretty similar to inverted hammers but occur in a different meaning. These are generally seen after price increases and indicates that a cryptocurrency could be about to start on a downward course.
Hanging Man Candlesticks
Hanging Man Candlesticks are helpful for assessing when markets might start to decrease. These candlesticks appear after a period when prices have been going upwards. The long lower shadow indicates that selling pressure indicates the increases in recent sessions may come to an end.
When reading candlestick charts, it is important to get a short-term view as well as a long-term view. Also, do the planning to protect yourself in case of volatility. This requires using a stop-loss or stop-limit, which includes selling a crypto asset automatically when it touches a predetermined high or low point.
Popular Techniques For Technical Analysis
Most analysts are trying to unwrap the trends that reveal where a market is going. Some of these techniques are:
This attempts to overlook irregularity and extreme outliers in a cryptocurrency’s price. This is used to detect an upward course when assets go on touching new highs or lows in prices. Trend lines combined with analyzing the shape of the candlestick, can help show whether a trend is likely to continue or not.
This includes following the regular prices of a cryptocurrency over a fixed period of time. The time period can be a week, a certain number of days, or weeks. If a shorter time period is compared to a longer one, it can reveal new trends. It can enable the traders to choose significant levels of recent increase and decrease that a more long-term statistical analysis wouldn’t reflect clearly.
These types, techniques and methods of technical analysis helps traders to predict the market trends and take help them lessen the impact of volatile market.