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Technical analysis basics
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Technical analysis limitations
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Cryptocurrencies are volatile, unpredictable, and constantly evolving. If you want to trade or invest in them, you need to stay on top of the market trends and movements. But how do you do that? How do you find reliable sources of information, analyze the data, and make informed decisions? In this article, we will explore some of the best ways to track cryptocurrency trends using technical analysis, a method that uses historical price patterns, indicators, and charts to forecast future outcomes.
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- Aanand Raj Trading Strategy Specialist @ Deribit l Crypto Derivatives | CTP | Ex-GE
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- Evgeny F. Founder, Managing Director at AlphaBerry Capital crypto-fiat hedge fund
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- Georges Remboulis Macro Insights | Global Risk | Financial Markets
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1 Technical analysis basics
Technical analysis is based on the assumption that the price of an asset reflects all the relevant information and emotions of the market participants. By studying the past behavior of the price, technical analysts can identify trends, support and resistance levels, breakout points, and reversal signals. Technical analysis can help you understand the market sentiment, identify trading opportunities, and manage risk.
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- Aanand Raj Trading Strategy Specialist @ Deribit l Crypto Derivatives | CTP | Ex-GE
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See AlsoBitcoin dips to a low of $65,600 as weekend volatility creeps in15 Best Indicators for Crypto Price Prediction Analysis in 2024Crypto Price Prediction: Top Altcoins To Watch Amid Market CorrectionCrypto Prices Today March 15: Bitcoin Crashes To $67K, Ethereum Dips 7%, SOL Rallies As XRP & PEPE Plungei am heading Research desk at Delta exchange, biggest crypto Derivatives exchange for retail traders.from this experience i am commenting for better reach.Technical analysis bias doesn't change at all based on asset, you follow same process as followed in Tradfi.its just that this market is global in nature, hence NO GAPS.
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- Georges Remboulis Macro Insights | Global Risk | Financial Markets
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Cryptocurrency has visible trends and reactions based on the evolution of the overall monetary system. This includes hedging fiat currencies (future implications of CBDCs), inter-jurisdiction compliance and several manners of building trust in the global economy. A wider view and constant analysis are critical to a more complete understanding.
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2 Technical analysis tools
In order to perform technical analysis, you need certain tools that can assist with collecting, visualizing, and interpreting data. Charts are one of the most common tools; they are graphical representations of price movements over time and can be displayed in various formats such as line, bar, candlestick, or point and figure. Additionally, indicators are mathematical calculations applied to price or volume data to create signals or patterns. Platforms are software applications or websites that permit access, viewing, and analysis of charts and indicators. They may also offer features like news alerts, trading bots, or social networks. Examples of platforms include TradingView, Coinigy, Binance, and CryptoCompare.
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- Evgeny F. Founder, Managing Director at AlphaBerry Capital crypto-fiat hedge fund
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However, keep in mind that, as a rule, technical analysis indicators are simply a price calculated using some formula. In other words, when observing charts through indicators, you need to understand that technical analysis only helps to see specific patterns and a particular mathematical interpretation of the price.The actual market driver that triggers the price movement can be a combination of many other factors not reflected by technical analysis indicators. For example, if the SEC announces a legal claim to a token that is perceived by the market as aggressive and dangerous, the price can drop significantly within a short time frame despite technical indicators demonstrating BUY signals.
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3 Technical analysis strategies
Tracking cryptocurrency trends using technical analysis requires developing a strategy that fits your goals, style, and risk tolerance. This strategy should provide rules or criteria for entry and exit points, position size, stop loss, and take profit levels. You can base your strategy on one or more indicators, chart patterns, or signals. For example, trend following aims to capture the majority of a market trend by following its direction; you can use indicators such as moving averages, trend lines, or MACD to identify and confirm the trend and use trailing stops to lock in profits and minimize losses. Swing trading exploits short-term fluctuations of the market by capturing the swings between the highs and lows; you can use indicators such as oscillators, Fibonacci retracements, or candlestick patterns to spot reversal points and use fixed targets and stops to secure gains and limit risks. Additionally, scalping is a strategy that involves taking small profits from frequent trades within a narrow price range; you can use indicators such as Bollinger bands, RSI, or stochastic to identify overbought and oversold conditions and use tight stops and limits to protect capital and maximize efficiency.
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4 Technical analysis tips
To effectively track cryptocurrency trends and improve your technical analysis skills, there are some tips to consider. Utilizing multiple time frames can give you a better understanding of the overall trend, intermediate movements, and short-term opportunities. Combining different types of indicators can also increase the accuracy and reliability of your signals and patterns. Additionally, using a demo account is a great way to practice your technical analysis skills without risking any capital. A demo account is a simulated trading environment that allows you to trade with virtual funds and real market data, giving you experience, confidence, and feedback.
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5 Technical analysis limitations
Technical analysis is not a perfect or foolproof method, and it has some limitations and challenges that need to be taken into account. One of these is the self-fulfilling prophecy, where the market moves in a certain way because many traders expect it to do so based on the same indicators or patterns. This can create a feedback loop that reinforces the validity of technical analysis, but also increases the risk of sudden reversals or deviations. Noise is another issue, which is caused by random and insignificant price movements that can distort the signals and patterns. To reduce noise, you can use longer time frames, smoother indicators, or filters. Additionally, lag is a delay between the occurrence of a market event and its reflection on the indicators or charts. To minimize lag, you can use faster or leading indicators, or adjust your parameters.
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6 Here’s what else to consider
This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?
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- Evgeny F. Founder, Managing Director at AlphaBerry Capital crypto-fiat hedge fund
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A deep understanding of market sentiment and experience in economic data interpretation must always complement technical analysis skills.
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