Major Terms to Know for Technical Analysis on Cryptocurrencies
TA always considers the history of a coin with price charts and trading volumes, no matter what the project does. As opposed to TA, fundamental analysis is more focused on establishing if a coin is over or undervalued.
A TA is a term used when you take existing, real-world data from cryptocurrency market and attempt to plot it forward in the hope of predicting where it will go next. TA, if done right allows you to forecast when the market will be bearish (trending down) or bullish (trending up).
If predicted correctly, this allows you to buy when the market price is low (buying on the dip) and sell when it is high this making a profit. In this guide, we’re going to go through the most basic elements you will see on a chart and explain how they work and its importance.
Before getting into it all it is extremely important to know that TA predicts an outcome from the possible futures taking into consideration the history of price, volume, and trends. So, you can never be too sure and a 100% about any prediction, especially in the crypto market where volatility is at its extreme. So, here we go.
If you ever look at a coin chart you will see rectangle shaped objects colored either green or red/pink. Also, the lines coming out of the bottom and top. Since they resemble a candle, they’re named candlesticks.
The rectangle in itself shows the gap between the opening and closing price for that coin on the chart. If the candlestick is green it means the price of the coin is increasing and red if its decreasing. For a green candle, the price opens at the bottom and closes at the top, while for the red candle the prices open at the top and close at the bottom. The “wicks” that come out of the rectangle on the top and bottom show the highest and lowest range of prices.
When the volatility is low it means there are higher chances of getting a huge loss or a profit. But if the volatility is low it could mean that the market is consolidating indicating that the price could moon or crash.
Volume is the total number of coins trade and mostly visible as a bar chart at the bottom. It is important because it is the measure of volatility in the market. The larger the volume of trade, the bigger the volatility we’ll see in the price. Volatility is important because it provides the opportunity to buy at a low price and sell at a high price.
If the prices are increasing with an increasing volume it means that there is a genuine momentum in the price increase. So volume acts as an indicator. However, one indicator is never an answer, you should look at patterns across various indicators. Moreover, if the volume is down, it usually means that there isn’t much conviction in the market and that price could move down.
The volume will also spike during an announcement of a listing of coins on particular exchanges. So it is necessary to pay attention to that as well to make a good profit.
Support And Resistance
A support level is a level where the price tends to find support as it falls. This means that the price is more likely to “bounce” off this level rather than break through it. However, once the price has breached this level, by an amount exceeding some noise, it is likely to continue falling until meeting another support level.
A resistance level is the opposite of a support level. It is where the price tends to find resistance as it rises. Again, this means that the price is more likely to “bounce” off this level rather than break through it. However, once the price breaches this level, by an amount exceeding some noise, it is likely to continue rising until meeting another resistance level.
A trendline is a line drawn over the price candles or under them to show the prevailing direction of price. Trendlines are a visual representation of support and resistance in any timeframe. They show the direction and speed of price, and also describe patterns during periods of price contraction. There are two types of trendlines, which are self-explanatory, Uptrend and downtrend.
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