Understanding Technical analysis of cryptocurrencies.

Since the cryptocurrency market is highly volatile, you need to have a strategy to guide your trading. Many crypto traders turn to technical analysis to help them create their strategies. This type of analysis can give you insight into the past movements of cryptocurrency, helping you predict where it will head in the future.

Defining Technical Analysis

To truly understand how to use technical analysis in your cryptocurrency trading, you must be aware of what it means. Technical analysis involves using real-world data to try to predict the future of the market. It involves looking at past statistics of the cryptocurrencies in question, including factors like volume and movement.

The Basic Ideas Technical Analysis Is Based On

There are a few ideas that are part of Dow Theory and serve as a background offering the basis for technical analysis. To start with, the theory indicates that pricing in the market includes consideration of everything. For cryptocurrencies, that “everything” includes current, future, and past demand, regulations, expectations of traders, trader knowledge of the cryptocurrency, and more. With technical analysis, traders analyze the price to see what it suggests about the market sentiment.

Reading Candlestick Charts

The most popular type of graph crypto traders use for technical analysis is a candlestick chart or graph. It can seem intimidating at first but is fairly easy to understand once you get the hang of the chart.

Gaining Basic Information From Candlestick Charts

At the most basic level, you can use candlestick charts to see how the cryptocurrency in question did to make predictions for the future. If, for example, the wicks are long, this indicates a highly volatile market. That, in turn, means that the cryptocurrencies have a higher chance of having given you significant losses or gains in the relevant period. Furthermore, high volatility means the market may correct this tomorrow.

Understanding and Using Trend Lines

One of the first elements of technical analysis traders should learn is trend lines. Trend lines indicate the direction that the cryptocurrency moves, but they require some analysis to determine. That is particularly true given the volatile nature of cryptocurrency. Thanks to that volatility, technical analysis needs to find the overarching trend going up or down amidst all the smaller highs and lows. To make it even more complicated, trends can move sideways. Sideways trends indicate that a cryptocurrency has not moved significantly up or down.

Understanding Support and Resistance Levels

Another concept to understand in technical analysis is support and resistance. Both of these are horizontal lines you can draw onto your trading chart to gain insight into the cryptocurrency.

Understanding Trading Volumes

Looking at the trading volume of a cryptocurrency can help you determine whether a trend is significant. High trading volume tends to indicate a significant trend you should take note of. By contrast, low trading volume indicates a weak trend that may pass quickly.

Understanding Market Caps

The cryptocurrency market cap gives you an idea of a coin’s stability when using technical analysis. To calculate market cap, just multiple the total circulating supply by the price of each coin. Cryptocurrencies with larger market caps tend to be more stable.

Understanding Relative Strength Index

Most cryptocurrency charting programs will also include Relative Strength Index or RSI indicators. The RSI’s formula is 100 — (100/(1-RS), with RS equaling the ratio separating the average number of days that a coin was up to the average of how many days it was down. Your chosen chart will automatically calculate this for you, typically displaying it under your candlestick chart.

Understanding Moving Averages

Moving averages is a part of technical analysis that helps you recognize trends. The moving average depends on a crypto’s average price over the chosen period. The typical calculation of a day’s moving average is based on the past 20 days’ trading prices of the coin. You can connect all of the moving averages to create a line that you extend out to guide your predictions.

Choosing Time Frames

As you work to conduct your technical analysis, you will have the ability to set your own time frames on the price chart. Some common options include 15 minutes, hourly, four hours, and daily charts, although there are numerous others. You should choose your time frame based on your style of trading.

Combine Technical Analysis With Other Methods

Ideally, you should never rely solely on technical analysis when trading cryptocurrencies. It is best not to use any single analysis method alone as this will give you limited information. If you were to rely just on technical analysis, you would not get any insight into sentient or news, which are part of fundamental analysis. This is particularly problematic with cryptocurrency trading since factors like mining hash and regulations can have a significant impact on the coin’s price, but technical analysis does not account for them.


Technical analysis can give cryptocurrency traders insight into the past of a crypto, facilitating future predictions. Most charting software has numerous technical analysis tools already built into it and you can supplement these with your own analysis. For the best results, always try to combine technical analysis with other methods.

Blockchain Engineer and A.I engineer