How to Use Technical Analysis in Crypto Trading in 2022 • Benzinga

Want to jump straight into how to use technical analysis in crypto trading? TradingView is the leading charting tool with all the indicators and drawing tools you need to trade cryptocurrencies using technical analysis.

Trading assets and markets can be very difficult. Whether you are day trading, swing trading or scalping, it makes no difference. According to various studies, he 70% to 97% of traders lose money over time. Given this, the advantages a trader can get increase their chances of success.

A trading edge can be strategy, technology, risk management, technical analysis, or anything that helps someone succeed. Traders sometimes win trades without gaining an edge, but struggle to win consistently.

Understanding technical analysis is an important advantage a trader can gain. While far from perfect, technical analysis can give traders a more complete picture of an asset or market.

What is technical analysis in cryptocurrency trading?

Technical analysis looks at asset prices, volumes, support/resistance levels, and chart patterns to determine if an asset is bullish or bearish. Technical analysis is also used to identify potential reversal levels and help develop trading strategies.

A typical mistake new traders make is not having a trading plan before entering the trade. A good trading plan should contain at least the following, based on technical analysis:

• entry price
• position size
• Take Profit Goals and Strategies: Close the Whole Deal or Scale Out?
• Risk management: how much risk you are willing to take on a trade = where your stop loss is

Protecting capital through risk management is important for all traders, especially new traders. It is also important to stick to the plan once you are in the deal. Don’t let emotions change your plans.

Traders also use technical indicators to aid in their analysis. There seems to be an endless list, but here are some of the most popular.

• Relative Strength Index (RSI)
• Moving Average Convergence Divergence (MACD) Indicator
• Stochastic Oscillator
• Integration/distribution line (A/D line)
• moving average

Technical analysis can be performed on all timeframes. The timeframe to use depends on the type of trade.

best crypto technical analysis trading signals

Traders can use various trading signals to identify potential trading opportunities. Some price patterns develop over time, while others are created by technical indicators. Below are some examples of common trading signals.

death cloth

A dead cross occurs when the short-term moving average breaks below the long-term moving average, indicating recent price weakness. This signal is usually the 50-day moving average below the 200-day moving average. The death cross is not 100% accurate as the moving average is a lagging indicator that reveals the historical performance of an asset.

The golden cross, which indicates recent price strength, is the opposite of the death cross. A golden cross is formed when the short-term (50-day) moving average crosses the long-term (200-day) moving average.

head and shoulders

The Head and Shoulders pattern is a topping pattern that indicates a potential trend reversal. This is a price formation with three peaks and a baseline, with his two peaks on the outside being close in height and the middle peak being the highest.

The pattern has right shoulder, head, left shoulder and neckline. A trader who spots a head and shoulders pattern will usually wait until the price breaks through the neckline before entering his short trade.

A reverse head and shoulders pattern forms at the bottom, indicating a possible trend reversal.

Triangle (ascending, descending, symmetrical)

Triangles are another typical chart pattern, especially in Bitcoin. A triangle pattern consists of two trendlines that meet at a point. Triangle patterns are classified as ascending, descending, and symmetrical.

Ascending triangles are bullish formations that appear as continuation patterns during an uptrend. It can also form during a downtrend and act as a reversal pattern.

The upward pointing triangle has a relatively flat top trendline representing overhead resistance. The lower trendline forms an upward slope as price hits higher lows. To enter a long trade, traders look for breakouts above the overhead resistance.

A descending triangle is a bearish pattern that is the opposite of an ascending triangle. The descending triangle has a relatively flat lower trendline that acts as a level of support. As the pattern unfolds, the upper trendline shows gradual lowering of resistance forming the downhill. Short The trader looks for a breakdown below the lower trendline before he enters the trade.

The chart above shows Bitcoin’s giant descending triangle during the 2018 bear market.

A symmetrical triangle is formed by two converging trendlines. They indicate market indecision and are seen as continuation patterns. Breakouts usually occur in the general direction of the market.

price channel

A price channel is formed when the price bounces between parallel resistance and support lines. The price channel can be flat or sloping upwards or downwards. Traders look for opportunities to buy at support and sell or short at resistance. Traders also look for opportunities to go long or short if the price breaks through the channel.

How to use technical analysis in crypto trading

While not perfect, technical analysis can give traders a more comprehensive view of a particular cryptocurrency or the market as a whole. To do technical analysis, you need good tools. Most importantly, good charting software or a solid platform. TradingView is one of the best charting platforms on the market. TradingView is free, but serious traders are encouraged to consider one of our paid subscriptions.

Another advantage of using technical analysis is that it shows good entry and exit points. Technical analysis can also be used to identify support and resistance levels. Traders can use technical momentum and volatility indicators such as Average True Range to determine position sizing and risk management.

Risks of using technical analysis in crypto trading

Technical analysis is very profitable, but you should be aware of the risks. The sheer number of technical indicators and chart patterns available can be confusing. With so many options, bounce from one indicator to the next before developing and thoroughly testing your strategy. There is a possibility.

Choosing which and how many indicators to use can be a difficult task. It’s easy to overcrowd your charts with indicators, creating a confusing mess. This is a common mistake new traders make.

Technical and Fundamental Analysis in Cryptocurrency Trading

Now that you understand the basics of technical analysis, let’s compare it to fundamental analysis. Technical analysis examines price action, volume, and chart patterns to scrutinize cryptocurrencies.

Fundamental analysis examines on-chain data for specific cryptocurrencies, exchanges and miners. It can also include project-specific information such as the person or team that created the project, the purpose of the project, the project roadmap, or the project tokenomics.

Short term traders mostly rely on technical analysis and some combine technical and fundamental analysis. Long-term investors will focus on fundamental analysis, but may also include technical analysis on longer timeframes.

Here are some of the more popular tools for crypto technical analysis.

Moving Average Convergence Divergence (MACD)

Based on the relationship between two moving averages, the MACD allows you to assess the direction of the current trend (bullish or bearish) and predict where the price is likely to go.

Relative Strength Index (RSI)

The RSI is a momentum indicator that looks at the magnitude of recent price movements to determine if the price of a cryptocurrency is overbought or oversold. This indicator can also be used to identify bullish or bearish divergences between the indicator and price.

Here are some examples of the more common tools used in basic cryptoanalysis.

glass node

Glassnode is a blockchain analytics company that provides on-chain market and exchange data. Some Glassnode data categories include markets, exchanges, network stats, profit/loss, and distribution. Traders can learn a lot from this data, such as currency inflows and outflows, whale deposits and withdrawals, and address balances.

coin market capitalization

CoinMarketCap is the world’s most popular cryptocurrency price tracking website. There are over 21,000 different cryptocurrencies, and cryptocurrencies are ranked by market capitalization.

Researching cryptocurrency projects is easy with CoinMarketCap. Everything you need to know about project teams, tokenomics, roadmaps and historical price performance is available on our website. CoinMarketCap is an essential tool that traders and investors should use.

Is it worth using technical analysis?

Although not perfect, technical analysis gives traders a huge advantage. If you don’t do a technical analysis before you start trading, you are trading blindly. However, it takes more than technical analysis to become a profitable trader.

Traders should also devise repeatable strategies that increase their chances of profitable trading. Anyone who has ever traded knows that emotions are a trader’s worst enemy. Having a trading plan and sticking to it helps take the emotion out of trading.