Those who have already taken their first steps into understanding how cryptocurrency (and mining) works most likely know the basics. They’ve already bought the best crypto wallet and know all about mining. As such, there’s no point in explaining the elementary terms and workings.
However, these people are also the ones who want to take a step further. One of the more important lessons is the technical analysis of cryptocurrency.
Technical analysis is an important part of nearly every industry. But what does this term even mean? And how does it apply when it comes to cryptocurrency? Why is it so important? How does it work? Find out below!
What is technical analysis?
Technical analysis is a study that combines statistics with recognizable patterns. Of course, these patterns must be recognizable to the naked eye. If not, the entire concept may appear to be unfamiliar and strange.
This study looks at price action, chart patterns, trends, and more. Investors use technical analysis to project and predict future patterns in the market. Depending on their predictions, they may buy or sell on that market.
Of course, there’s no guarantee of the accuracy of these studies. However, it helps investors get a better feel for the market and enables smarter buying and selling decisions. In other words, it increases the probability of success but doesn’t guarantee it.
Overall, technical analysis is important because it’s better than just guessing the outcomes or buying and selling on a whim.
How does technical analysis apply to cryptocurrency?
Technical analysis has a wide range of uses in cryptocurrency. This includes predicting price fluctuations, mapping out price patterns, developing and deploying strategies, and more.
This is all possible with the help of following and tracking trends. When do investors buy their cryptocurrencies? Through what means? The same question goes for the selling of these currencies. If you look at the patterns across both long-term and short-term charts, you’ll be able to get a feel for it as well.
Why is technical analysis so important?
Technical analysis is important in cryptocurrency because it helps keep the market stable and consistent. Being able to understand how the prices will change over time is a key factor for investors.
Additionally, the crypto market is volatile and speculative. Unlike the stock market, it’s one that falls more under the influence of human emotion than other assets. This is part of what makes it hard to predict trends and understand price fluctuation.
The prediction and control over trends may just be what the cryptocurrency market needs to stay in the mainstream.
How to do technical analysis
While there are a few tips you should keep in mind, which we’ll get to later, there are also tools you should use. Beginners should stick to the basics and use tools to learn the fundamentals of technical analysis. After this, they may consider moving on to more advanced tools that give them more insight.
Some of these tools include uptrends and downtrends, the RSI (Relative Strength Index), Trading Volume, Bollinger Bands, and more.
However, just using these tools probably won’t lead to much profit. You need to apply them carefully to be able to see any results.
First, you must understand that your technical analysis won’t be perfect in the beginning. It takes a lot of practice and trial and error to get it right.
Second, you may feel compelled to use all the tools and overdo the technical analysis. However, this can lead to mistakes, confusion, confirmation bias, and a messy chart.
A much better idea is to use as few tools as possible. Additionally, using tried-and-true, proper strategies will help you avoid these issues.
Finally, you need to know that learning never ends with technical analysis. Because it’s a dynamic study, a lot can change within a few months. It’s important to keep track of what’s new and throw away old, invalid tactics for new ones that work.