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No matter what anyone’s ever told you, producing a steady income trading takes time, experience, dedication, and a lot of emotional grit. However unlike traditional markets, you can make money much faster trading cryptocurrency (and lose it just as fast) due to the markets volatile nature and low barrier of entry.
There are two vital aspects to become a successful crypto trader. Obtaining a solid understanding of technical analysis and managing your own emotions. I would go so far to say that the emotional aspect of trading is a bit more difficult, however we’ll dive more into that aspect of trading in another guide.
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Let’s talk technical analysis and some of the most basic crypto trading indicators you’ll need to learn, in order to get a grasp on what you’re doing.
Technical analysis (AKA – TA) is a representation of price and trading volume over time, using an easy to read graphic representation of candlesticks. These candlesticks form patterns over time which traders commonly referred to as chart patterns. These patterns represent mass psychology over a group of traders during a set period of time.
The only other option you have to make sense of all these varying numbers would be for you to calculate volume and price on a linear scale over time. Take that number and multiply it by pie over distance. Easy right?
For the 99% of us that aren’t math geniuses, charts and technical patterns are what we have to revert to in order to make sense of it all. Without it, our brain would clench up faster than doing multiple trigonometry problems on 8 cans of red bull.
Ok, you get the point, moving on….
There are two types of research methods that you want to be familiar with before attempting to make any trade; technical and fundamental analysis.
Fundamental analysis is focused on aspects of of a cryptocurrency like the development team, utility of the coin, white paper current investors, etc . The latest news, and rumors surrounding your potential coin can also be factored into fundamental analysis. All these play a major part on the value of any cryptocurrency.
You’ll find our live charts page to be an all-in-one resource to for all your fundamental analysis needs. We cover cryptocurrency whitepapers, official crypto websites, social media accounts, blockchain info, and more. We everything you need to know, in order to make a well informed buying decision.
Before we go covering the details of technical analysis, remember that price movements on a given chart are rarely ever random. They often follow a trend, both long or short term, depending on the timeframe you are looking at.
The term trends, within the trading community, are not some new pair of $100 stone washed Justin Bieber jeans you decided to purchase because your girlfriend thought they were cute. These trends refer to the mass psychology of a group, in order to obtain increased price movement, through the analysis momentum in a particular direction.
The “group of people” (or herd) were analyzing, always follow certain patterns and react to certain price levels. These can be predictable to those who know what to look for. This…my friend, is what technical analysis is all about.
In order to be a one of the great crypto traders of our time, you’re going to need to recognize certain trends as well as chart and candlestick patterns. Also worth noting, trading indicators (RSI, MACD, Stochastics) are a great way to verify your TA strategies.
Got it? Good! Let’s move onto….
One of the more simple indicators to identify in your early stages of your trading career are support and resistance lines. Trading patterns are always made up of of these two fundamental levels.
Support is when you have more than two candlesticks that touch a particular price level towards the bottom of a trend. These tend to touch and bounce off support, thus moving up towards the top of the price level. These are known as resistance levels. A single bounce off support and resistance is known as a cycle. The more candlesticks that touch your support and resistance, the stronger they are. Let’s take a look at a strong support and resistance.
As stated above, you need at least 2 touches of a candlestick, within a cycle, in order to claim any sort of support or resistance. I typically look for at least 3, in order to be more confident about a certain level.
Ok, now that we’ve covered support and resistance levels let’s move onto trend lines.
The only major difference between support and resistance lines are the fact that trend lines tend to be drawn in a diagonal direction. Support and resistance are drawn with straight horizontal lines.
When it comes to trading, a picture is definitely worth 1000 words. In order to better conceptualize trend lines, let’s have a closer look at both rising and falling trends.
Much like the support and resistance lines, you want to make sure you have “at least” 2 or more touches off a candlestick in order to consider it a trend. The more the merrier.
Trend lines can also move sideways, which we typically label as a “consolidations”. You also have short, intermediate, and long term trend lines depending on the timeframe of the chart you’re looking at.
Time to step your game up a little and start getting acquainted with more technical aspects of trading like moving averages.
|Moving averages are generally used to simplify trend recognition. These moving averages are based on the average price of a coin over a designated period of time.
You can calculate moving averages to show the average of any group of candles, but most traders calculate these averages over a period of 10, 20, 50, 100, and 200 timeframes (minutes, hours, days). The one I personally use the most is the 50 Day Simple Moving Average (SMA).
There are also two types of moving averages you can use, exponential or simple moving averages, depending on how broad or narrow you want your insight to be. I recommend using both. Let me explain…
There are certain strategies for each, however to be more specific, exponential moving averages give higher weighting values to recent prices, whereas simple moving averages assign equal weighting to all values.
To put it in layman’s terms, SMA will give you a broader overview of where a trend is at and EMA is best used to make quick judgment calls on more recent price action and trend reversals.
I like to use a 50 day moving average on all my charts. These allow me to quickly tell whether a trend is currently in a bear or bull market within the timeframe I am viewing.
Anything below the 50 day moving average tells me that the trend is currently in a short or long term bear market. If the candlesticks are above the 50 day moving average, you’re in a bear market trend. Knowing which trend you’re in (both long and short term) will allow you to better formulate a strategy moving forward.
Exponential moving averages (EMA) will help you decide if a trend is about to reverse within a short term timeframe. Many traders use different EMAs, however the one that I found to be the most useful are the 13 and 34 day moving averages.
Here is the basic strategy behind EMA …
As you can see, as soon as any of the lines cross, a substantial shift within the trend can be seen. This combined with a few other indicators to help substantiate your trading strategy, will help you form a profit maximizing trade.
Next, let’s talk about a very important indicator that all traders use… volume.
Trading volume plays a crucial role in identifying whether a trend is weak or strong. Strong trends with high trading volume will always be accompanied by long candlesticks. The same goes for weak trends. These will be accompanied by short candlesticks.
Let’s break this down and structure it appropriately…
– If you have several long candlesticks along the volume indicator, this indicates a strong trend. If most of these are green, that would indicate a strong bullish trend. The opposite goes for red candlesticks indicating a strong bearish trend.
Pretty simple right? Exactly! This ain’t brain surgery folks. Volume indicators are really simple to understand.
Don’t be lured into the always present debate between fundamental and technical analysis. Many novice traders tend to choose sides between these two research powerhouses. They believe one is ultimately better than the other.
This couldn’t be any further from the truth. You should be asking yourself….why choose one method over the other, when you can choose both right?
Using technical analysis (TA) as well as fundamental analysis (fundamentals) will equip you with the prophetic knowledge you need to culminate a precise trading strategy that you can actually feel good about.
Technical analysis will give you a practical way to measure past price movements and their corresponding trading volume. This is vital knowledge you’ll need when considering a trade.
Fundamental Analysis will empower you with significant insight regarding the current cryptocurrency conditions. Everything from current news, rumors, and future developments will play a crucial role in your decision when using fundamental analysis.
Combine these two powerful research techniques into one highly effective trading strategy.
Utilize fundamental analysis to dictate which coin is worth investing in, while tightening up your strategy when you’re ready to trade, by finding a good entry point with technical analysis.
In order to get started, we’re obviously going to need to get familiar with a trading chart to plot out some beautiful technical analysis strategies right? You can start by utilizing our free chart here, however there will come a time when you need more than what this free solution has to offer (like alerts, more indicators, etc).
This is why I highly recommend TradingView for all your trading and chart plotting needs. TradingView offers a lot more than just charts. They include a massive selection of experienced traders you can follow and learn from. Take a look over expert trade setups on a number of coins and learn from real life application.
It is the quintessential social media platform for all traders, both novice and experts alike. They also have a very comprehensive traders reference guide that you can study if you ever want to expand your knowledge on the field. Reading up on trading ideas about various indicators, chart patterns, candlestick patterns, and then viewing them on live trades really helps.
I highly recommend starting with the Pro plan to start. If you need more indicators and alerts on down the line, go for the Pro+.
This guide has presented you with the basic concepts behind technical analysis. I highly recommend you practice using the indicators and patterns I covered above. Once you’ve got a good handle on them, move on to more advanced charting patterns. I’ll go over these within another guide.
Now get out there and start charting!
Go on….you can do it! Don’t just let your dreams be dreams!
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