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Beginner-friendly Cryptocurrency Technical Analysis Guide

In the endless pool of information available on the internet, it could prove challenging to learn how to trade cryptocurrencies. To help you out, we have created this technical cryptocurrency beginner’s guide for 2022. With it you will get a solid understanding of technical analysis, keeping your cool when trading and identifying the market direction even beyond technical analysis.

How did it all start?

Digital currencies have been around for a while in different experimental forms. However, the first cryptocurrency which was successfully implemented was Bitcoin (BTC) back in 2009. Ever since Satoshi Nakamoto (pseudonym) created the most popular cryptocurrency, Bitcoin, thousands of new cryptocurrencies (altcoins) have been created and listed on major crypto exchanges such as Binance, Coinbase, FTX and others. Some of the largest coins in terms of network value aside from Bitcoin are Ethereum (smart contract blockchain technology) and Tether (stablecoin). Thanks to the growing popularity of crypto, which is based on blockchain technology, we’ve seen the rise of new opportunities such as decentralized finance (DeFi) and its cryptocurrency investing features.

Nowadays, crypto has come a long way with an estimated market capitalization of around $1 trillion. That’s still just a fraction of the global market if we compare it to the stock market which has an estimated market capitalization of $90 trillion.

Stock market vs Crypto market

Let’s take a look at the differences and similarities between the two:

Similarities

  • Stock trading and investing tools, technical analysis and fundamental analysis are used to analyze the markets.
  • Trading and investing strategies are similar. Traders in both markets can choose to day trade, swing, or position trade. They can also opt to buy and hold their assets for the long term.
  • Similar market products. Whether you want to trade futures, options or leverage, both the stock market and the crypto market offer these options.

Differences

  • Market volatility — The crypto market is accustomed to wilder price swings while the stock market is more stable.
  • Market maturity — The stock market has been around for hundreds of years, while the crypto market is about a decade old.
  • Market assets — The stock market features companies while the crypto market deals mainly in technology and currencies.
  • Regulations — Regulation in the stock market is more developed and strictly implemented. On the cryptocurrency market side, regulators are still grappling with understanding the emerging asset classes which leads to various laws depending on the country.

Cryptocurrency trading strategies

Before we cover the main trading strategies, here are some of the most important aspects you need to know:

  • Keep your emotions out of trading. The crypto market is quite volatile and often experiences huge swings in short periods of time. It is important to keep your cool and avoid panic selling. Successful traders rely on previous analysis, clear decision making and sticking to their trading plan.
  • Risk management. Every action has consequences and that is why identifying risk is a crucial factor. Make sure you’ve done enough research before spending your money on a project.

Here are some of the popular strategies used by highly successful traders and investors:

Day trading and Scalping

As we’ve mentioned, crypto is volatile and that works to the advantage of the level-headed and knowledgeable. A successful day trader would make multiple trades within a day, buying low and selling high, collecting small gains every day. This strategy is called scalping.

Swing trading

Swing trading strategies allow traders to plan ahead over a longer period – a few days to several weeks or months. In crypto, this strategy is also referred to as BTFD (“buying the f#n dip”), which basically means buying when the price is low usually after a big sell-off and selling when the price increases. Extensive application of both FA and TA (covered later) is necessary when using this strategy.

Position trading (HODL)

For many, the most popular crypto strategy is the HODL (Hold On for Dear Life). With it, traders invest in a digital asset and keep it for a really long period, sometimes years. The crypto asset stays in a digital cryptocurrency wallet on a cryptocurrency exchange or in cold storage.

Margin trading (trading with leverage)

Margin trading is more of a method than a strategy and involves a trader borrowing more capital than he/she has to open positions. Their liquidity positions are greatly amplified to either direction of the trading position – winners win a lot, losers get liquidated. Leverages on most crypto exchanges range between 2x-120x. For beginners, we do not recommend leveraging higher than 5x due to the high volatility.

Cryptocurrency trading techniques

The two main techniques used to analyze and evaluate cryptocurrencies are Fundamental Analysis and Technical Analysis. They are often used complementary to each other. The combination of these two strategies will equip you with the proper knowledge to successfully execute a profitable trading strategy. In short, technical analysis will provide the necessary knowledge to measure past price movements and trading volumes. Fundamental analysis will increase your insight regarding current news, rumors, crypto conditions and future developments of the cryptocurrency market.

Fundamental Analysis (or FA)

FA is the art of identifying an asset’s value by analyzing the economic and financial factors. In order to understand whether the asset is overvalued or undervalued two important elements have to be considered- on-chain and off-chain metrics. On-chain metrics include network hash rate, wallet addresses (active and dormant), network applications (dapps), token/coin issuance rate (inflation/deflation), network fees and transactions. A simple way to track Bitcoin and Ethereum on-chain metrics is by using Bitinfocharts.com. Off-chain metrics are the social indicators such as community engagement, exchange listings, government regulations, etc.

Technical Analysis (or TA)

Technical analysis is a representation of price and trading volume over time, using moving averages, trend lines, candlesticks, chart patterns, and more to analyze it. At the end of the technical analysis, a trader should understand how or why an asset price moved in a certain direction, where it might move in the future and identify a potential entry point.

Don’t be lured into the eternal debate between fundamental and technical analysis. Many novice traders tend to choose a side between the two, believing one is ultimately better than the other. We believe that TA and FA can complement each other.

Support and Resistance Levels (Base and Ceiling)

Base and Ceiling

Every trader should be familiar with the two fundamental levels – Support (Base) and Resistance (Ceiling). The support level is reached when more than two candlesticks touch a particular price level at the bottom of a trend. In contrast, when the price moves upwards touching the top of the price level, the resistance level is triggered. The more candlesticks touch the support or resistance levels, the stronger they are.

Support and Resistance Levels

Trend Lines and Moving Averages

Trend Lines and Moving Averages

Trend lines tend to move in a “consolidating” diagonal direction, up or down. You have short, intermediate, and long-term lines depending on the timeframe of the charts.

Moving averages are based on the average price of a coin over a specific time period and are usually used to simplify trend understanding. These Moving Averages can be calculated over a period of 10,20,50,100 and 200 timeframes (minutes, hours, days). The 50 days one is considered by many to be the most useful. The simple way to use moving averages is by identifying whether the market is in a bull (long) or bear (short) scenario. There are two types of moving averages, exponential and simple. When the two meet, it indicates a trend reversal, meaning it’s a good time to enter the market.

Trading Volume

Trading Volume

Trading Volume plays a very important role in identifying trends. Long candlesticks indicate a strong trend due to the high volume. If the predominant candlesticks are green, that would indicate a bullish trend and the opposite goes for red candlesticks indicating a strong bearish scenario.

Conclusion

We hope that you have learned a lot from our beginner’s guide on crypto technical analysis and strategies. Keep on expanding your knowledge further and good luck trading!

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