The Beginner Friendly Guide to  Technical Analysis With Cryptocurrency

The Ultimate Beginner Friendly Guide to Crypto Technical Analysis

No matter what anyone has told you, producing a steady income with trading takes time, experience, dedication, and a lot of emotional grit. However unlike traditional markets, you can make money much faster with trading cryptocurrency due to its volatile marketplace and low barrier of entry.

There are 2 parts to becoming an successful crypto trader and that is mastering technical analysis as well as your own emotions. I would even go so far to say that the emotional aspect of trading is a bit more difficult. We’ll divulge into that aspect of trading in another guide.

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Let’s talk technical analysis and some of the most basic cryptocurrency trading indicators you’ll need to master, in order to get a foothold on what you’re doing.

What is Technical Analysis?

Technical analysis (AKA – TA) displays a cryptocurrency‘s price and trading volumes over time using a nice and easy to read graphic representation of candlesticks.

The only other option you have to make sense of all these variable numbers  would be for you to calculate volume and price on a linear scale over time multiplied by pie over distance, but for most people that is completely impossible. Believe me, that crap will make your brain clench up faster than solving a trigonometry problem on 8 cans of red bull. Let’s just say, unless you’re a math genius, just stick to the charts, ok?

 

There are two types of research methods that you want to be familiar with before starting to make actual trades; technical analysis and fundamental analysis.

Fundamental analysis is focused on aspects of the development team behind each cryptocurrency. It also includes the latest news, and rumors surrounding your potential coin. Believe me, all these can play a major part on the value of any cryptocurrency.

PRO TIP: You can learn more about the fundamentals of trading here. 
Check out our live chart, and click on any cryptocurrency you’re interested in. We give you an all-in-one location for you to research coins and complete your fundamental analysis.
We cover cryptocurrency whitepapers, official coin websites, social media accounts, blockchain info, and  more. Believe me, we cover everything you need to know, in order to make a well informed buying decision.

Before we go into details of technical analysis, remember that price movements within a chart are not random. They often follow a trend, both long or short term, depending on the timeframe you are looking at.

technical analysis trends cryptoTrends within the trading community are not some new pair of stone washed jeans you decided to purchase for $100 because Justin Biebers wearing them. These trends refer to the mass psychology of a group in order to capture gains through the analysis of an asset’s momentum in a particular direction. The “group of people” (or herd) were analyzing, always follow certain patterns and react to certain price action. 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 your time, you’re going to need to recognize these trends like chart and candlestick patterns, as well as certain indicators (RSI, MACD, Stochastics). We cover more about candlesticks patterns  here. Click the link, as it opens in a new tab, and check it out once you’re done here.

Let’s get started…

Support and Resistance Levels (Bases and Ceilings)

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 comprised of these lines.

Support (you can think of them as a base) is where you have more than two candlesticks that touch a particular price level on the way down a trend. These tend to bounce off support and move upwards from towards resistance to form another cycle.  The more candlesticks that touch your support, the stronger it is. Let’s take a look at a strong support.

strong-support-lines-trading-technical-analysis

Now if a support is the bottom of a cycle (or base), then what do you think resistance is? That’s right….you guessed it! A resistance line would be where your candlesticks continue to touch at a price level moving up and then eventually dips to touch the support again. Let’s take a look at a strong resistance line.

strong-resistance-lines-trading-technical-analysis

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 you have mastered support and resistance lines (well, with a little practice you’ll get there), so let’s move onto trend lines.

Trend Lines – Riding The Highs and Lows

The major difference between support and resistance lines and trend lines are that trend lines “typically” tend to be drawn in a diagonal direction. Support and resistance are drawn with straight horizontal lines. That’s not always the case, but it’s more often than not. 

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 a rising and falling trend.

up trend line down trend trading technical analysis

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.

Now that we’ve covered the basics of trend lines, let’s step your game up a little and start getting a little more “technical” with moving averages.

Moving Averages – What Are They and Why You Should Care?

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 days, but most traders calculate these averages over a period of 10, 20, 50, 100, and 200 days. The one I personally use the most is the 50 day Simple Moving Average (SMA) which is used to identify trend direction.

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 average give higher weighting 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 better used to make quick judgment calls on more recent price action and trend reversals.

I like to use a 50 day moving average in all my charts. These allow me to quickly tell whether a trend is moving up or down. It also tells me if the current trend is in a bullish or bearish state within the current timeframe I am viewing.

Anything below the 50 day moving average tells you that the trend is currently in a short or long term bearish trend. If the candlesticks are above the 50 day moving average, you’re in a bullish trend.  Knowing which trend you’re in (both long and short term) will allow you to better formulate a strategy moving forward.

bullish and bearish area 50 day moving average technical analysis

The Simple EMA Strategy

Exponential moving averages (EMA) will help you decide if a trend is about to reverse on a more short-term scale. 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 …

  1. Set one EMA to 13 and choose a color (red for this example)
  2. Set another EMA to 34 and choose a color (blue for this example)
  3. When the 13 EMA crosses above the 34 EMA (red over blue) you should look into buying at that cross, as the trend is entering a bullish state (moving up).
  4. When the 34 EMA crosses above the 13 EMA (blue above red) you should be selling as the trend is entering a bearish state (moving down).

exponential moving averages of 13 and 34 technical analysis trading

As you can see, as soon as any of the lines cross, a substantial shift within a trend can be seen. This combined with a few other indicators will help you formulate a game winning trade.

Next, let’s talk about a very important indicator that all traders use… volume.

Trading Volume – The Tasty Filling Between 2 Price Levels

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 many long candlesticks. The same goes for weak trends. These will be accompanied by many short candlesticks.

Let’s break this down and structure it appropriately…

– If you have several long candlesticks within the volume indicator this indicates a strong trend. If most of these are green, that would indicate a strong bullish trend. Vice versa for red candlesticks indicating a strong bearish trend.

– Many short candlesticks within the volume indicator show a weak trend. If most of these are red, it would represent a weak bearish trend. On the other hand, if most of are green, this would indicate a weak bullish trend.

volume-indicator-trading-technical-analysis

Pretty simple right? Exactly! This ain’t brain surgery folks. Volume indicators are pretty simple to understand.

Technical & Fundamental Analysis Unite
The Two Eternal Research Strategies

 

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 my friend, could not 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 development plans will play a crucial role in your decision with fundamental analysis.

Combine these two powerful research techniques into one highly effective and targeted trading strategy.

You want to 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.

Start Your Trading Journey Off On the Right Foot

technical-analysis-trading-chart-cryptoIn order to get started, we’re obviously going to need to use a trading chart to plot out some beautiful technical analysis 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 that you can both follow and learn from. You can view expert TA trades 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 technical analysis reference guide that you can study if you ever want to expand your trading know-how. Reading up on trading ideas of various indicators, chart patterns, candlestick patterns, and then seeing them in action 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+. 

Let’s wrap this up…

This guide has presented you with the basic concepts behind technical analysis for trading with any particular cryptocurrency. I highly recommend you practice using the indicators I discussed above and move on to more advanced charting patterns, which we’ll cover in another future 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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