Fundamentals of technical analysis

Cryptocurrencies have recently grown in popularity as a financial asset. The high volatility of trading instruments, including cryptocurrencies, piques the interest of not only newbies but also an increasing number of experienced traders all around the world. However, technical analysis on the cryptocurrency market has its specifics, so this article focuses on its methods more precisely.

To begin, you should understand that crypto-trading is based on two factors: the current state of the price and the possibilities of price fluctuations (trend) of a certain trading instrument. When it comes to technical analysis, traditional financial markets can provide some insight. Many cryptocurrency traders employ the same technical indicators seen in currencies, stocks, and commodities. There are numerous strategies and approaches to trading that make use of technical analysis. Essentially, all approaches employ technical analysis aspects, which are classified into three categories:

• support and resistance levels;
• price patterns;
• technical indicators.

We provided some of the technical indicators that help to forecast the short-term price movement of an asset. First of all, we could not help to mention Moving Averages (MA). This is the foundation for the rest of the indicators and tactics on the crypto market. The MA is the average price of a currency pair over a given time. The indicator enables the trader to see the market’s steady progression. The moving average replicates the price movement, but more slowly and without sudden jumps.

Further, the RSI (Relative Strength Index) is a stock indicator that depicts the current situation of an asset (overbought or oversold). This tool reflects the intensity of the market’s trend feeling so that the user may decide whether to initiate a trade or wait for a price reversal. The RSI is an oscillator with a range of 0 to 100. If the RSI is greater than 50, traders believe the trend is upward. When the RSI falls below 50, traders believe the momentum is bearish. In practice, however, traders have gone even further, concluding that if the RSI is above 70, the asset is likely overbought. If the RSI falls below 30, the trend is not just bearish, but the asset may be oversold.

The Stochastic Oscillator is the most prominent technical indicator after that. SO compares the current closing price to a price range for a period chosen by the trader. A stochastic oscillator is a two-line impulsive indicator that compares an asset’s closing price to a price range over time. Calculations are typically based on data from the previous 14 days. The stochastic oscillator, like the RSI, has a range of 0 to 100. Values greater than 80 suggest that an asset is overbought, while values less than 20 indicate that it is oversold.

However, tools such as the Relative Strength Index (RSI), Moving Average Convergence/Divergence (MACD), RSI, Bollinger Lines, and many others attempt to forecast market behavior regardless of the asset traded. As a result, these technical analysis tools are very popular in the crypto market. Follow the link to bit4you Academy for more information on each of the technical analysis instruments. Here you will find everything needed to be confident in your trading skills. Stay updated with bit4you Academy and the cryptocurrency market will never confuse you!

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