The cryptocurrency market is here to stay and will be here for quite a while as people adjust to the new world and what it has to offer. Bitcoin serves as a foundation, followed by Ethereum and other digital assets. Traditional financial institutions are building infrastructure and creating opportunities for people to get involved in a more trusted manner.
Members of large financial hedge funds, asset managers, and others have left the traditional financial markets to gravitate to and invest in the cryptocurrency market.
They realize that the current macro environment brings about the need to move into alternative assets and are taking the necessary actions to make certain to target and obtain the right returns over the next decade.
These professionals realize that there are two ways to achieve return objectives. The first way is to analyze cryptocurrencies through fundamental analysis and the second way is through technical analysis.
The fundamentals in cryptocurrency networks can be composed of components such as computing power, the number of holders of the asset, and the number of users that are present in the network. Largely, the fundamentals include the hashrate, the growing base of users, and the number of investors who will hold the network asset for the long term. In general, the larger the network, the higher the use and value flow, and the better the communication and collaboration among the different parties in the network the better.
Fundamental analysis is fascinating but it can require a lot of time investment and a deep understanding of the interrelation between all parties within the system. One will also have to understand how new parties would have an influence on the network, the network asset, and affect the value and the price of the asset.
Fundamental analysis in the cryptocurrency market can be even more complex as people are still trying to find out more about the knowns and unknowns.
Conversely, the technical analysis offers a different approach where one views the charts and studies the past movements to predict the future and bet accordingly. Technical analysis helps to show market momentum, statistics, and investor actions.
Further, these technical analysts will look at the current price and the characteristics present in the volume to understand how to invest and place value. Speculators and long term capital allocators may use a mixture of both analyses to make decisions while speculators may use TA in an exclusive fashion, technical analysis can provide more clarity when allocating capital.
Best Crypto Technical Analysis Essentials
Here are the main points you must remember when it comes to the best crypto technical analysis essentials. The first point is that technical analysis (TA) is the notion of turning to the charts to pinpoint speculation signals and price movements.
Those who are starting their foray into this concept must start with comprehending why it provides an overview into the ecosystem that is the digital asset market and how it can provide the potential for massive gains.
Next, know that experimenting with speculation approaches is fine but the real gains come from a disciplined system that stems from one mode of trading. The idea here is to minimize emotions and to maximize data-driven decision making to have positive outcomes.
Finally, make certain that you are working with the right tools and digital asset entities to minimize losses while you pursue profits using technical analysis.
Compelling Technical Analysis Stratagems
Professional traders approach their technical analysis in a dual manner. They can opt to use both tactics or one of them.
The first one is known as the general to the particular approach or the top-level hierarchical approach. Those who are interested in sticking around for the short term are more prone to this top-level hierarchical or top-down method.
The second one is more in line with investors who want to stick around for a long time, they use the bottom-up process. Whichever one you choose, remember that there are several components that are relevant to each of them.
The Top Level Hierarchical Process
As seen in the name, a top-level hierarchical approach compels one to look at the cryptocurrency market from a holistic birds eye view of the comprehensive crypto economy and will then view the prospects of individual components within that economy.
Of course, this can be very fascinating as one learns about the current state of the entire market. The speculator will first take the view of the general economy before, demarcating units into segments, and analyzing different networks therein.
These speculators want to quickly assess the situation and look at how they can strike to make a gain within the near future. They do not care for valuations that are overstretched, instead, they long for simple gains at the current moment. What are they looking at here? Aspects such as the do day moving average in bitcoin or other assets.
Speculators will make a decision on whether it is a buying or selling opportunity.
Ground Up
The ground-up approach is exactly what it sounds like as investors look at individual units exclusively such as bitcoin, ethereum, or numerai. They eschew the macro view and only care about the specifics of one type of digital asset. They look at different indicators and make a purchase or bet against the asset to make money over the long term. The idea here is to target the best time to get in and the potential time to get out.
What does this mean?
One investor might look at bitcoin in late 2018 and realize that it is certainly oversold and make a significant purchase when they make their calculations. The idea here is to enter the trading position at the right time when there is support and hold. They yearn for a substantial margin of safety in their investments and strive to hold the asset for a lengthy duration.
Different Holding Timelines
Remember that each of those who are in the top-level hierarchical approach will have varying timelines that go from the current day to the current week to the current month. The horizon to hold investments will vary and will inform the investment process and the type of technical decision making.
For instance, there is day trading, position trading, swing trading, scalping.
Day Trading
Day trading is quite prominent in movies and in the common world. Many think that this is the only form of short term active trading but they would be wrong. One would resort to this method if they were only participating in the market for that single day. For instance, they would make a position on the day and exit on the same day. They will not carry positions to the next day.
Those who resort to this approach are more likely to be professionals who take this role on for a living. These individuals might make markets. In addition, there are those who will opt to utilize automated augmented tools to conduct this activity. Those who are only interested in daily positions will look at basic aspects such as trendlines and the number of trades or size the activity taking place in the market.
Position Trading
One can involve themselves in this approach by purchasing low and selling high and waiting for some time. Now, many might think that this is not as active but it can be because traders will watch the markets regularly, look at patterns, and then add to positions more comprehensive charts.
They intend to view the gyration of the markets and trade in line with it.
Diving a bit deeper into this we see that they might look for greater prices in a pattern or decent strength in the highs of bitcoin or another asset. They will seize the moment and go with the movement of the market until a certain point and get out if they think the market will move against them. They care not which direction it is going just that they are positioned in the right way.
They will not view potential price points only in the general direction.
Will these people jump in during excess volatility? They will not because it is harder to see the general direction of the asset.
Swing Trading
Swing speculators will watch for the reversal patterns and then invest. What does this mean? The market can move up for ten days and then reverse the course. This is when the swing speculators jump in and take their position.
These traders understand that the trend will change at one point and form a new one. When the volatility is at a comfortable level, these traders will purchase the asset and hold it for a while before selling. This approach requires a movement in a specific direction for a while and not regular volatility and sporadic movements up and down. Further, a flat market doesn’t please those who choose to approach the market from a swing position.
Scalping
This is a very active approach where the speculator will quickly take advantage of the price differences present in the bid-ask as well order movement. The approach here is simple where one will purchase at the general buy price and then divest it at the market selling price to make a profit. The reason why this must be done in a frequent fashion is that the profits are small but large when done many times. They hold it for a few seconds or minutes at a time and divest accordingly to profit.
It is not about taking advantage of significant price movements in the market but only taking advantage of the regular bid-ask spread in the markets that they can do regularly.
They will also initiate moves in places that are more liquid or where more people are so they can get in and out without any issues. They don’t want too many large swings and prefer to have profits on slowly changing markets.
Those who have a longer horizon will want to understand the chart information such as other sentiment and speculation signals. Remember that there are those who are interested in investing in more sophisticated tools and will turn to patterns, indicators, and other components to make their decisions.
Develop Your System
To get started on the wonderful action present within the cryptocurrency markets you must first have a plan. As such, the first item on your agenda is to choose a plan and create a speculation system that will work in your favor and will align with you.
The approach must be stable and consistent because it is the consistency that creates further value. The foundation is critical and must be something that you prioritize first. There are several strategies and plans of action that you can follow.
One strategy might be the notion of executing moving average crossover implementations, where a trader, let us call him Portnoy, will follow several moving averages (10-day and 20-day) on a specific digital asset. They will watch the price to see how it fluctuates and will take action according to these plans.
This approach will view the lesser moving average and see if it is rising above the longer-term one and may see it is a positive trend showing strength and potential gains. If it were to go in the other direction, that would indicate a potential short opportunity.
It is essential to experiment and form your system and then stick with it.
Choosing Virtual Assets
Remember that you must choose the digital assets that favor your style of speculation. Not all assets will be the right one for your technical analysis process and commitment. You might seek volatility or the opposite and might want stability with little upticks in price movement.
Further, realize varying assets will command different settings from trendlines to averages.
Select the Right Platform
The proper speculation account with the right entity will help you minimize losses, and increase your chances of having the right assets. Further, it could have the right visuals and tools to help you in your journey to utilize TA to profit.
Consider Your Trade Activity
Taking into account your activity will help you understand how well you are doing in the markets. It will help you understand where you went wrong and why you went right. You can learn from your mistakes and celebrate your successes.
Consider Tools
After you begin and experiment with trades you might realize that you need more tools that help you understand more data. Feel free to explore after you get the basics down and use the present charts and options on the platform to improve your experience.
People may want to have notifications while they are out and others may want to borrow to increase their profits.
Assess and Reassess
Take the time to look at your system and the market and make modifications as needed when the facts change.
Risks to To Watch
Lack of rationale – Those who do not have a proper strategy and philosophy are likely to get destroyed in the markets while utilizing technical analysis. Remember that there are rules and logic in technical analysis. Minimize risks by understanding these rules and logic points. Avoid loss of capital by taking measured and calculated steps to meet your goals.
Experiment with trading rationales and strategies to understand how they worked in the past. Of course, this will not give you full details but it will let you have some data on how they may perform in the future.
Jumping in the game without a plan. There are several tools out there that let you demo trade cryptocurrency with minimal cost or for free. Why not dabble and practice before risking your money?
As noted earlier, technical analysis is not an end all be all solution. It does have its flaws and it can be wrong. Do not only rely on it to obtain gains.
Be quick to adapt and plan for different situations that may occur. This seems obvious but this means that you should have the means (time and money) to change your strategy when needed.
Start simple and then scale up.
Final Words
It is not easy and there are costs involved with every move. They may range from the abstract such as opportunity costs to more direct expenses such as exchange fees and taxes. When looking at your strategy you must account for these costs as they will add up over time and eat into profits.
Then remember that no one becomes a professional overnight and they must work hard at it to succeed and thrive.
Make it a point to set time aside and to improve your trading each day by learning, researching, and growing. You have started your journey but you have a long way ahead of you to become the successful trader you wish to be.
Becoming a chart reader and technical analysis expert means that you are looking to have a better position and return objective than the rest of the market. That is something that is earned and not given outright. Focus on doing the work and don’t look for magic solutions. Tinker and learn to create your own solutions to persistent problems.