How to Do Technical Analysis for a Coin – A Starter Guide

If you’re starting to trade crypto coins, you must get used to charts, patterns, and price level analysis.

Your success in the crypto coin markets depends on your ability to read, interpret, and predict future price movements.

As most experienced traders will tell you, becoming successful in cryptocurrency isn’t a walk in the park. Even though technical analysis is a single aspect of crypto trading, it is a critical indicator of future price movements and reversals in coin markets.

So, what is technical analysis? What tools can you apply to be successful in the coin markets?

What Is Technical Analysis?

Technical analysis is a trading technique whereby traders evaluate coin markets by examining price data generated within market conditions, such as previous prices and volume.

Technical analysis is often used to identify trends and support and resistance levels, which can be used to help make trading decisions. Some standard techniques in technical analysis include moving averages, trend lines, and oscillators.

As every trader desires to hit take profit levels, technical analysis techniques equip coin traders with the necessary information to understand the current market patterns and critical levels. With this data, you can predict any coin’s future price movements.

If all goes well with the predictions, you can quickly determine whether the market is bullish or bearish. In addition, you can pinpoint the most profitable entry points; buying at the lowest point in the market and selling at the highest point.

A Step-To-Step Guide to Crypto Coins Technical Analysis

Mastering crypto coins’ technical analysis is more straightforward than it seems.

Check out these simple steps to follow while doing technical analysis on crypto coins:

Identify Your Preferred Coin

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The crypto market is flooded with several coins. With different characteristics, pricing, supply, and demand. However, successful traders will always insist on specialization rather than generalization.

Pick the most preferred coins and stick to that!

Choose a Time Frame

Technical analysis can be done on different time frames, such as hourly, daily, or weekly charts. The time frame you choose will depend on your trading style and the type of coin you analyze.

Once this is done, different time frames are used for various functionalities in technical analysis.

Higher time frames, such as daily and weekly, are used to draw key coin market levels, while shorter time frames, such as hourly, are for market entry positions.

Identify Support and Resistance Levels

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Support and resistance levels are prices at which a coin’s price tends to pause or reverse direction. These levels can be identified by looking at past price actions and drawing horizontal lines on the chart at critical levels.

Support levels are prices at which demand for a coin is strong enough to prevent the price from falling further. At this level, buyers are willing to step in and purchase the coin at a lower price, supporting the price and preventing it from falling further.

On the other hand, resistance levels are prices at which there is a concentration of selling pressure, leading to a cap on the coin’s price. This is because sellers are willing to sell the coin at a higher price, creating resistance and preventing the price from rising further.

When a coin’s price approaches a support or resistance level, traders will watch closely to see if the price will break through the level or bounce back. A breakout through a resistance level may indicate that the coin’s price will continue to rise. In contrast, a break below a support level may indicate that the price is expected to continue falling.

On the other hand, a bounce off a support or resistance level may suggest that the current trend is likely to continue.

However, always remember that support and resistance levels are not exact prices but rather zones where the price is likely to pause or reverse direction. As such, it’s essential to use other technical analysis tools, such as trend lines and indicators, to confirm the strength of these levels.

Use Technical Indicators

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Many technical indicators can be used in technical analysis, such as moving averages, relative strength index (RSI), and stochastic oscillators. These indicators can help you identify trends, measure momentum, and identify potential buy or sell signals.

You don’t want to buy or sell the coins at the wrong time. That’s why you must re-evaluate price movements over a larger time frame. This brings us to the concept of moving averages, split into; simple moving averages (SMA) and Exponential Moving Averages (EMA).

While the moving average is the most commonly used technical indicator, you should also note other indicators can be used depending on the market conditions and the desired outcome.

Trading With the Trend

A trend takes different forms within complex market charts. A trend line connects different high and low points within a market condition. As more points touch the trendline within the market, the stronger the trend becomes. A coin market can be either in an uptrend or a downtrend. Always consider trading crypto coins in the direction of the trend.

Using Candlesticks

Candlesticks are a critical part of coin market technical analysis. Traders use them as entry-point determiners after identifying key levels, trendlines, and price movements.

Candlestick patterns can appear on a coin’s price movement chart. They can provide insight into the market’s sentiment and potentially indicate a trend reversal or continuation. Here are some common candlestick patterns:

Bullish Patterns:

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• Bullish engulfing pattern: The pattern is formed when a bear candlestick is followed by a large bull candlestick that completely engulfs the bear candle. In this case, buyers are taking control of the coin market, and a potential uptrend may be imminent.
• Hammer: The hammer pattern is formed by a small body candlestick with a long lower wick. Suggesting buyers are taking control of the market, and a potential uptrend may be coming.
• Morning star: It is formed with three candlesticks: a small bear candlestick, a large bull candlestick, and a small bear candlestick. It indicates a potential trend reversal from an uptrend to a downtrend.

Bearish Patterns:

• Bearish engulfing pattern: The candlestick pattern is formed when a small bull candlestick is followed by a large bear candlestick that completely engulfs the bull one. It indicates that sellers are taking control, and a potential downtrend may be imminent.
• Shooting star: This pattern is characterized by a small body with a long upper wick. Sellers are taking control, and a potential downtrend may be coming.
• Evening star: This pattern consists of three candlesticks: a small bull candlestick, a large bear candlestick, and a small bull candlestick. It indicates a potential trend reversal from bullish to bearish.

Execute Your Trade

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If all the conditions have been met and you have identified the key levels, trend lines, indicators directions, and candlestick patterns, proceed to execute your trade.

Just like in any other securities and forex market, always remember to place a stop loss and take profit levels for your orders to protect your profits and investment.

Conclusion

Crypto coin technical analysis is a technique that has been around for years. When fully mastered can make you successful in your coin trading journey. However, as mentioned earlier, it’s just a single aspect of coin trading.

Therefore, always consider the underlying fundamental analysis before making investment decisions. It is important to note that other factors, such as coin technology and market sentiments, influence coin market conditions.

There needs to be more than technical analysis. Combining technical and fundamental analysis is a more rational approach to successful coin trading.