Crypto currency technical analysis

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Once the trend is formulated, prices move in the same direction. Think of trading indicators as a map that guides you through the maze of ambiguity. Using them in coalition with a bit of market psychology and understanding of risk will enable you to make better trading decisions.

Given their quantitative nature, you can also automate your trades using these indicators. The OBV is a cumulative total of the trading volume of an asset. It takes into consideration the trading volume of the previous days, weeks, and even months. There are three simple rules to calculating OBV:. Interpretation of OBV is usually as follows;.

If the price movement is supported by the volume, then the trend direction is confirmed, indicating it can be relied upon to set up trades. However, if the price movement is opposite to the OBV movement, it reflects confusion in the market.

A sustained increase in the OBV levels indicates the potential breakouts in price. Both price and OBV fluctuate consistently. This reflects uncertainty in the market as the ultimate breakdown happens with prices falling drastically.

To arrive at the metric value, here are the formulae. H - Highest Price, for that specific period. And general observations are:. Also, it is suggested to never use it as a standalone indicator. Using it in line with other technical aspects will enable you to be a better trader. This is a 6-month chart of Alphabet Inc. It resulted in a huge negative breakout in price levels. ADX with its accompanying two indicators measures the strength of the current trend of the asset.

While calculating ADX, the time period is generally divided into 14 bars. However, ADX can also be plotted for shorter timelines like 7 bars or longer ones like 30 bars. While the former makes the ADX line too volatile, the latter is time-intensive, thereby making it unreliable to use while placing trades.

ADX is a trend-based indicator, hence, using it alone is a risky proposition. In conjunction with price movement indicators, like moving averages or support and resistance, ADX can make you a better trend trader. However, as we zoom out from the chart, the price has rallied higher as the trend gained strength and momentum. This line reflects the number of days since the asset price reached its recent day low while also confirming the bearish sentiments in the market.

Similar to AroonUp, the closer the AroonDown value is to , the stronger the sentiment. Both the Aroon Lines move parallel to each other indicating the price consolidation of Bitcoin in the given timeframe. Two observations here: In the former left , we can see how AroonDown rising above AroonUp indicating a price downtrend.

Likewise, the price falls. General interpretations of the MACD indicator are as follows:. By coupling trend and momentum, MACD has evolved into a popular, yet reliable trading indicator. Also, it provides enough flexibility because MACD can be applied to price charts of different time frames. In the below chart, we make two observations,.

This is another observation with regards to how MACD can be used to identify divergences and reversals. This is an indicator of trend reversal and when MACD fell below the Signal Line, the bearish divergence set in and the price fell by a substantial margin.

Now, the crossover line black dotted line - vertical would have been an ideal time to place short trades. RSI values can read anywhere between 0 and It is popularly used to evaluate an asset based on it being overbought or oversold. Traditionally, RSI values are interpreted as follows:.

This indicator oscillates between the range of 0 to , measuring the momentum of the asset. The formula to construct a Stochastic Oscillator is as follows:. The Stochastic Oscillator as a sole indicator is not advisable. So, using it in combination with a moving average indicator is recommended to build a holistic trading strategy. This article is aimed at imparting knowledge about technical analysis, trading indicators, and their importance.

Also, we delved into the know-hows and employment of seven top trading indicators. Understanding the trading indicators, their utility, and limitations is required before employing any. Coupling this knowledge with your risk appetite and time in hand is necessary to become a successful trader. CoinMarketCap Updates. Table of Contents.

What Is Technical Analysis? What are Technical Indicators? Aroon Indicator. Stochastic Oscillator. By Lakshman Prabhu. How to Use the Stochastic Oscillator? Technical Analysis TA is a popular technique to evaluate stocks or coins based on similar data points and elements.

This articulation will tell you about TA while also delving into trading indicators before we conclude with the best indicators for you. TA or Technical Analysis is very similar to idea 2. This is a psychological assumption deeply engraved in the ABCs of technical analysis. Market participants often react similarly when the price moves in a certain direction. Now, after learning what the strategy is, we are going to learn about the tools required to make the strategy work.

The most prominent tool for a TA-based trader is Trading Indicators. Hence, during TA, technicals like support levels can go for a toss as every trader with their prejudice intact can draw support lines at different price points. Support and resistance zones are vital and drawing them should never boil down to destiny. To remove this uncertainty and provide a level-playing field, technical indicators are used.

Now that we understand how TA works and how we can use indicators to be better traders, let us delve into seven of the best technical indicators. OBV is a volume-based technical indicator.

While this is the textbook definition of what technical analysis is, many technicians know that it should not be looked at as an exact science. They view it as a strategy that can inform their trading and increase their chances of long-term success.

One of the most quoted arguments against the significance of technical analysis is that of the Efficient Market Hypothesis EMH. In other words, the asset price will reflect all available information in the market and is correctly priced.

If there are movements in one way or the other, these will be related to pure chance and cannot be modeled or predicted. Of course, the EMH is itself quite a dogmatic theory that is often also used to dismiss other forms of investing such as fundamental analysis.

While most people will avoid this rigid approach when countering technical analysis, these are some of the other arguments that are made:. Indeed, some of the most notable investors such as Warren Buffet do not view technical analysis too favorably.

He famously once said:. These arguments against technical analysis tend to miss the mark in a number of ways. This is because they assume that those who practice technical analysis view it as some sort of a divine text that cannot be questioned.

The vast majority of technicians use it as a basis to inform their opinion and manage risks. They do not operate in a silo without consideration of other factors that could drive the price of the asset. This is exactly what the name suggests it is, a hypothesis. It is based on a mathematical theory that markets are always rational and that there are never any mispricings. There have been countless studies and empirical research that can refute this hypothesis.

There have been a number of other studies that have shown the same statistical significance in other markets. Momentum studies are used regularly in technical analysis and they clearly show that past returns are related to the future returns.

Yes, it is possible that a technician is noticing a pattern that is entirely subjective, however this argument makes a generalization. Disciplined technical analysts will have clear mental guidelines and rules of thumbs that they will use when identifying the exact patterns and formations.

Getting the setup right is essential and a weak pattern is likely to be a less instructive sign for the technical analyst. This also depends on the professionalism of the technical analyst. Very few technicians will use only one or two indicators. They will try and combine a number of them in order to confirm the signals certain indicators are giving. If they have contradictory readings from one or the other then they are likely to do more research instead of choosing the only indicator that confirms their view.

Moreover, the skilled technical analyst will also borrow studies from other disciplines in order to confirm their view. Traders should never operate in a vacuum and be hostile to other analysis and methods. So what if a large sophisticated hedge fund is able to get better returns than you? That is not the underlying question. All that matters is whether technical analysis is able to provide you with the right tools and indicators to get better returns than you would if you did not use it.

Whether the High Frequency trader can get better levels and faster execution should be irrelevant to your decision of whether you should use it. Their systems costs millions of dollars to develop and operate, your home PC is incomparable. Moreover, it misses the broader point about these firms. Many of the trading algorithms that are run by these firms operate based on inputs similar to those that are used in technical analysis.

This should further add weight to the argument that technical analysis can work when applied correctly. No trader should do their analysis in isolation.

They should try and incorporate other points of view and analysis into their decision making in order to build a fuller picture. Having said that, there are at least two advantages that Technical Analysis has over the likes of the more research heavy fundamental analysis.

External research reports that are based on fundamental inputs are often way more subjective. You have to draw a conclusion of the long-term prospects of a company, commodity or cryptocurrency based on a range of different factors Economic growth, sector growth, CEO vision. These are much more subjective than a collection of price levels which are completely verifiable. When you are trying to interpret a chart, it is only your analysis that counts.

You are unlikely to be swayed by the view of the person who is drawing up the research report. When an investor is entering a position based on their fundamental research, they are doing so based on their fair value assessment of the price of the asset.

This means that they will usually hold the asset over a long period of time in the hope that the price will eventually reflect that. The problem with this is that they leave very little room for their analysis being wrong. They have invested the time and the effort into their research and are way less likely to give up on the trade even if it is going against them.

Technical analysts, on the other hand, mostly trade with stop losses. They will often incorporate their stop loss, limit and take profit positions based on technical levels. Hence, if a trend does not confirm their analysis, they will have the adequate backstops in place. Technical traders can be considered more methodical in this sense. They have no qualms in giving up a trade and quickly cutting losses if it appears that they could have been wrong.

So it is clear that technical analysis can work when used in a risk controlled way by disciplined traders. But can it be used effectively in the nascent cryptocurrency markets? Technical analysis is likely to work more effectively in the markets that are liquid and where there is a greater degree of volume across a range of exchanges. Trying to read the charts of some mid and micro-cap coins is much less effective. This is because there is a great deal of market manipulation that takes place in the smaller market cap coins.

There are pump-and-dump groups and crypto whales that will try and create movement and interest in a coin in order to cash out on less experienced investors.

What you may interpret as a price that has broken a trendline could merely be the actions of some nefarious traders goading less experienced ones. Pump-and-dumps also bring volume with them which is usually also another important indicator used in technical trading. Moreover, with thin markets prices are likely to gap much more easily. This means that levels could easily shoot past your stop orders or be hard to exit when you would like.

Artificial markets and artificial demand could quickly deplete your portfolio. Stick with coins that you know have a lot of volume and are not as susceptible to market manipulation. For example, the coins that are in the top 10 of market capitalization are likely to be the most secure from a market efficiency standpoint.

It is important to note that technical analysis is a tool and like most tools, it can be used correctly and incorrectly.

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Blockchain Technology Feb 17, To better understand how a project could perform, you should research the professional experience of the team running the project.

This may include reviewing the LinkedIn profile to learn about the professional background of any of the technical or leadership staff, as well as learning about the previous projects that the team members have launched. Most crypto projects have a clearly defined executive team that handles the vision, execution, financials, and marketing of the company.

Learning more about who is leading a cryptocurrency team can give insight into the probability of success for a project. While there are some projects with anonymous founders that have had success, such as Bored Ape Yacht Club , there are others that have committed fraud and destroyed a project, such as Wonderland. Learn about the leadership team before investing in any cryptocurrency. Cryptocurrency is a community-driven technology that typically requires a strong, supportive community to grow.

Learning about the community for a given cryptocurrency can help you gauge whether a project will succeed, or if it is pure hype and speculation. Joining the community Discord or Telegram channel can help you learn more about the community of a given cryptocurrency, as well as get your questions answered about the project itself.

If there is a large community base that is well-organized and frequently promotes the project, this could be a sign of a growing cryptocurrency. If there is sparse engagement and no substantive discussion on any community platforms, this is a red flag.

Cryptocurrencies are a new type of technology that are designed to improve financial services, as well as solve financial problems. Crypto projects are built on blockchain technology , but there are many innovations and variances to how they function. Understanding how the technology is being used to solve customer problems, as well as how innovation will help grow adoption, will give insight into the potential growth of a cryptocurrency.

While some of the technical aspects may be too complicated to grasp, the cryptocurrency white paper or website should be able to explain the solution in plain language that is easy to understand. Cryptocurrencies should have a clear vision of what goals they are setting out to accomplish, with an established road map of how they will get there.

This should be readily available in the crypto white paper, as well as on the company website. The vision of a crypt project should give enough details for investors to understand what problems they are solving, as well as the potential user base for their solution.

The company road map of a cryptocurrency is a time line of events that shows the expected progress of the project. Typically shown on a line graph, the road map should have clear and concise milestones broken down on a quarterly basis, all moving the project toward a predefined set of goals.

The road map may be available in the white paper, though most crypto project time lines are ever-changing and are listed on the company website. If there is no defined road map, or if the milestones are too generic, this is a red flag.

There are tens of thousands of cryptocurrencies, and unfortunately, some of them are scams designed to get the founders and early investors rich.

Researching the reputation of the team and leadership of a cryptocurrency can help investors understand if the crypto project is reputable or not. There are several places to learn about the reputation of a cryptocurrency project, from Reddit forums to Discord channels and social media accounts. Ask around these online communities to get a feel for the industry reputation of key leaders on the project, as well as the perception of that project. If there are lots of negative responses to questions about a key leadership member or the project as a whole, this could be a red flag.

Reputation is also established by researching who is supporting a project. If there are reputable investors already on board, as well as institutional backing, the project may have a greater chance at success. This is important, as it affects the overall price of a cryptocurrency over time. Similar to shares of stock in a publicly traded company, the price of a given cryptocurrency is a reflection of supply and demand. The more shares there are, the more demand there needs to be to increase the price.

Here are three important data points to review before investing in any cryptocurrency:. All three of these statistics can greatly affect the price of a given cryptocurrency, so understanding supply is very important for cryptocurrency investors. Crypto projects are also notorious for an uneven distribution of tokens, meaning that the token supply is low at launch and then increases substantially over time. This can cause a significant drop in price as the new tokens to flood the market.

Reviewing the token unlock schedule can help investors understand how the tokens will be distributed, and to whom. Crypto prices are known to swing up and down wildly, but there are many factors that cause this. Token supply, marketing efforts, project milestones, and many other factors can greatly influence the price of a given cryptocurrency.

Reviewing the price history of a cryptocurrency can help investors see how interest in the project has evolved over time. It can also indicate whether a given crypto project is growing or dying.

If a cryptocurrency had a huge spike in price but never recovered over the coming months and years, this can be a red flag for investors. The same goes for market capitalization and trading volume. If the market cap continues to decline the longer that the crypto has been around, and if there is no trading volume, then the project may be a poor investment. Cryptocurrencies are digital currencies that are not controlled or supported by any central authority like banks.

Instead, transactions and ownership data are stored through distributed ledger technology, such as a blockchain. Cryptocurrency can be a smaller part of a larger investment portfolio , characterized as a risky asset with more volatility than most investments. There are many popular cryptocurrencies on the market, but the simplest way to gauge the popularity of a given cryptocurrency is market capitalization.

This is the measurement of the total value of cryptocurrency based on the current price and total outstanding tokens in circulation.

Here are some popular cryptocurrencies ranked by market cap as of September :. A cryptocurrency analysis involves examining all the available information about a digital asset. Understanding and researching the topic helps an investor to determine its trends better. Today NFT News.