There are many methods used to make an investment decision, it can be the market sentiment behind the price, the value of the company, etc… Investing in cryptocurrencies goes beyond simply buying a currency and monitoring its performance on the market. Any real cryptocurrency trader would tell you that not investing in the wrong moments is just as valuable if not more than investing in the right moment. Let’s take an in-depth look at what technical analysis is all about as well as to perform it for yourselves!
What is Technical Analysis?
Technical analysis is the practice of analyzing the price history of an instrument in order to make actionable, risk-defined forecasts of its future price. Let’s understand some keywords and phrases that will give you a better understanding of what technical analysis is all about.
Trend lines: trends, or the typical direction that a coin is moving towards, can be most beneficial for traders of crypto. That said, isolating these trends can be easier said than done.
Resistance: resistance, or a resistance level, is the price point at which the rise in the price of a stock or a coin is halted by the emergence of a growing number of sellers who wish to sell the asset at that price. Resistance levels can be short-lived if new information comes to light that changes the overall market’s attitude toward an asset, or they can be long-lasting.
Support: a support or support level is a financial term that refers to the price level that historically a stock or coin does not fall below. Buyers tend to purchase the stock at this level.
Moving Average: a moving average is based on the average price of the coin over a certain period of time. For example, a moving average of a given day will be calculated according to the price of the coin for each of the 20 trading days prior to that day. Connecting all moving averages forms a line.
How to perform the technical analysis?
So, now that you’re aware of what technical analysis is and have familiarized yourself with key terms, let’s go over how to actually perform technical analysis when trading cryptocurrencies.
Performing technical analysis relies on your ability to identify and react to key indicators within the market, that will allow you to better analyze market sentiment towards specific coins. One of these indicators happens to be the trading volume of specific coins. The literal volume, the amount of coins traded, often appears as a column along the bottom of a price chart. The height of this column acts as a visual identifier of the volume, and the color indicates if that volume tended to be more bearish (sells) or bullish (buys).
In conclusion, Technical Analysis is complex to say is least, we understand now that it relies on the belief that studying the price on the charts alone is seen as enough. Volume is actually an extremely important indicator, as it shows just how serious a bullish or bearish market is. The larger the volume of trade, the more volatility we’ll see in the price.
As always, happy investing in ParamountDax!
Good luck! And see you soon!
View MVP: https://staging.paramountdax.com
And here’s how to get involved with the ParamountDax community: