Whether or not you will be able to trade cryptocurrencies using technical analysis depends solely on your ability to understand why the market moves in a particular way. The main goal of technical analysis is to offer a picture of the underlying order flow. You need to understand what other market participants and price movement can show you clues with that respect.
Yet, online educators and gurus turned technical analysis into an esoteric-type knowledge, linking it all sorts of patterns, price indicators, wave counts, etc. This is a very superficial way to apply technical skills, which is why today we’ll give you a few hints on how to do it properly.
Your broker and market liquidity
Before we start to talk about the actual principles, you must first make sure that your broker is offering you the best trading conditions. Whether you choose the Atecs Capital bitcoin trading offer, forex.com, or any other broker, it must give you access to an innovative platform and competitive features.
Second of all, technical analysis works better in liquid markets. As a result, you should stick with the most liquid cryptocurrencies. Bitcoin, Ether, XRP, or any token that is among the top 10 by market cap represent the best choices you could make.
Understanding trends and interest areas
Speaking of trends, the first type of trend is called volatile. A volatile trend is one where there is a dominant direction of price, with little or no pullbacks. In this case, breakout strategies are the most suitable. A non-volatile trend is one where the order flow is more balanced and there are stronger moves opposite to the dominant direction. In this particular case, retracement strategies are the ones which fit the best.
After we’ve managed to identify the type of trend and we know what strategy should is needed, the next phase requires us to find the price location to place our trades. Support and resistance levels are generally places where a big number of market players are placing trades in a particular direction.
There are many types of support/resistance levels: pivot points, Fibonacci levels, previous highs or lows, all with strengths and weaknesses which means it is up to you to test them all first and see which one works better for cryptocurrencies.
If you will manage to understand the market trend and find the places whether many orders will be placed, you will be two steps ahead in your trading journey. Risk management is another important factor to consider, but that’s part of another topic.
Giorgi is a news reporter and financial analyst at www.forexnewsnow.com He has 3 years of experience in analyzing the financial markets of Forex and cryptocurrencies. He also likes making hidden jokes in his articles.