By crypto technical analysis, we mean using mathematical indicators based on the price action data of the previous chart to predict the future. The basic idea of this analysis is to make the market behave according to specific patterns. Once the ideas are established, the market trend heads towards a direction that often continues along the same course for some time.
Investors tend to purchase cryptocurrency when the market is low. It allows them to sell higher in the future. Conducting technical analysis before entering the position is a way of identifying the price levels that are significantly low.
Although there is no single all-encompassing method of technical analysis. On the other hand, it also uses smart contracts of defi. In this article, we will talk about the crypto technical analysis and the way of doing it in detail.
Basis Of Crypto Technical Analysis
Crypto technical analysis can be conducted using a long list of different technical indicators and chart patterns. Some of them are as follows:
Candlestick Charts
Traders often prefer candlestick charts due to their high level of detail. Instead of condensing the data into one point for each time frame, the candles show four different price levels for each time frame, including high price, opening price, closing price, and low price.
Candlesticks present this information in the form of a bar and two wicks. The upper part of the upper bar corresponds to the high price, and the tip of the lower bar signifies a lower price. The body of the candlestick may appear green or red. Red indicates that the price ended the day after the opening price. Green indicates that the price has diminished a day higher.
In the green candlestick, the high price indicates the closing price, and the low price indicates the opening price. For red candlesticks, high indicates the opening price and low closing price. Each candle is read in the context of the surrounding data points and provides detailed insights into how investors buy and sell digital currencies over a period of time.
Relative Strength Index (RSI)
The Relative Strength Index is popular among both experienced and novice traders. This indicator is displayed as a simple line chart at the bottom of the price chart.
The line fluctuates between 0 and 100, with 50 neutral. A high price indicates an overbought condition, and a low value indicates an oversold condition. As with many technical analysis tools, the RSI is best used in conjunction with other indicators. For example, if the price of the cryptocurrency is approaching its traditional support level while the RSI is approaching its low of 20, the chances of an imminent price increase may be higher than normal.
Support And Resistance Level
The terms support and resistance refer to the level at which the price moves down or up, respectively. Traders can identify these levels and then use them to make informed trading decisions.
There are many possible ways to determine support and resistance. Sometimes it can be as simple as looking at a chart and showing whether the price has fallen repeatedly (for resistance) or low (for support). Once identified, traders can use these price levels to inform their trading strategy. For example, a Stop Loss order can be placed at support, and a Sell-Take order can be placed at or above the resistance level.
There are several ways to use support and resistance lines. It is because this level can be used to predict a price reversal or signal the emergence of a new trend if the price moves upwards. If the price continues to rise above the resistance level, this could indicate continued upward momentum. If the price drops below the support level, it could drop further.
Conclusion
The cryptographic analysis is just one of many things investors may want to know before investing in cryptocurrencies. It means that technical analysis of cryptocurrencies can be very subjective, even if the indicators themselves are based on mathematics.
Always remember that the technical indicators are not always accurate. Prices can react differently than expected, even if multiple indicators converge on the same conclusion. The best thing a trader can expect is that they are likely to make the right decisions based on the information available.