What is Technical Analysis: How to Predict Prices?

The crypto market is highly volatile, so it’s essential for traders to master special tools to foresee price trends. One of the main instruments here is technical analysis (TA). If you want to succeed in crypto trading, understanding the TA basics is a good place to start.

What is Technical Analysis or TA?

Technical analysis stands on the idea that history repeats itself. As for tools, it deals with statistics, price patterns, trading volume, market caps, candlestick charts, etc.

Why You Need Technical Analysis in Crypto Trading?

  • understand the market ‘psychology’;
  • evaluate your crypto against other digital assets;
  • predict where the price of this crypto will move based on the historic data.

On the whole, analytical data coupled with a solid trading strategy increases your chances of making profits.

What Are Price Trends?

Probably, you are already familiar with the slang terms “bullish” and “bearish” that refer to uptrend and downtrend.

An uptrend (or a bullish trend) means that your crypto or the overall market is going upwards, making new highs. In a downtrend (a bearish trend), your crypto or the whole market underperforms.

There is also a sideways trend when the price heads neither north nor south. Instead, it moves more or less horizontally. Sadly, there is no animal to represent this trend. 🙁

What Are Resistance and Support Levels

The resistance level is where the increasing price of an asset stops growing or even starts going down. It happens because there are too many traders wishing to sell high.

The support level is where the falling price stops going down or even starts going up. The reason is, there are too many traders who want to buy low.

What Tools TA uses?

It’s time to see what these tools are.

Trading Charts

A candlestick chart shows the price behavior over the time-frame you set. An advanced trader can read a candlestick chart at a glance. If you want to train this skill, start with reading our brief Candlestick Chart Guide.

Trend Lines

Also, trend lines help you make resistance and support levels visible. As a result, you get a clear picture of how the price has been doing over the period you specified. Following the pattern, you can extend these trend lines to the future and try to figure out where the price will move next.

Trading Volume

High or low trading volumes also help you understand if the price trend is strong (and important) or weak (and insignificant).

Market Cap

The bigger is the market cap of your coin, the more stable this coin is. Predictably, the leaders are Bitcoin ($208 609 926 925) and Ethereum ($44 097 367 883).

Moving Averages

A trader uses moving averages to recognize and predict uptrends and downtrends.

Bollinger Bands

The upper and lower bands show the volatility against the average price action the middle band represents. For instance, when the price rises/drops sharply, the upper/lower band moves away from the middle one. If the price has been more or less stable, the outer bands come closer to the moving average.

Therefore, a graph with Bollinger bands gives you a picture of price fluctuations over a certain time-frame and help indicate its resistance and support levels. Together with other instruments, they help you predict upcoming price moves.

Technical Analysis and Fundamental Analysis In Crypto Trading

Fundamental analysis (FA) is a broader approach. It assumes that the price of an asset depends on its value for the economy. To assess the long-term potential of the project, you should know the team’s background and understand the underlying technology, with its strong and weak points.

In one phrase, TA is a quantitative approach that uses math data, and FA is a qualitative approach with a focus on use value, reputation, technology, competition, and general market context.

Technical Analysis In Crypto: Closing Thoughts

Second, the crypto market is very mood-dependent, so it’s sometimes impossible to predict what will happen tomorrow, and why.

At the same time, mastering TA gives you an important advantage over traders who rely solely on intuition.

Originally published at Exscudo Blog. Check it out for more articles on crypto, blockchain, finance, trading, and technology.

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