One of two general approaches to the study and trading of crypto-currency markets is technical analysis. Fundamental analysis is the other way. Both are equally important and worth exploring.
Technical analysis is limited to the analysis over time of market price behaviour and related data (e.g. volumes). Insights can be shed on potential market activity, improving trade entry and exit accuracy by trends deciphered by analyzing charts and mathematical indicators.
Head and Shoulders Top/Bottoms, Double/Triple Top/Bottoms, Rectangles, Triangles, Wedges, Channels and Flags/Pennants are commonly found charting patterns.
As well as common mathematical indicators such as Moving Averages, Moving Average Convergence Divergence (MACD), Relative Strength Index (RSI), Bollinger Bands and Fibonacci Retracements, candlestick chart patterns are often useful for analyzing.
Point and Figure charts, Elliot Wave Theory, Gann, Market Profile and other indicators are used by some technical analysts, but discussion here will be restricted to the most common indicators that already provide reasonably robust trading signals.
Technical analysis or Fundamental analysis?
Technical analysis complements fundamental analysis and should not be a replacement for it. Both forms of analyses are applied by most effective traders. Fundamental analysis discussed in the sense of how it relates to FX markets generally includes the study, based on macroeconomic, sector and business-specific factors, of the potential earnings prospects of a region, industry sector or company.
Technical analysis is not 100 percent accurate, as with fundamental analysis. Technical analysis, rather than science, is frequently criticised as being an art form. The trick is not to rely exclusively on technical analysis, let alone on a single predictor of mathematics or charting pattern. In Multiple Time Frame Analysis, the study of a variety of trends, various charting patterns and statistical indicators provides a basis for making trading decisions. It is important to supplement this understanding with an awareness of market dynamics and general trading principles.
There is a fairly broad scope of technical analysis. Any asset class (i.e. cryptocurrencies, equities, commodities, fixed income and FX) whose values are dictated by supply and demand can be subject to this. Within every time frame, technological research often works. Across most time frame maps, the understanding of charting trends and statistical measures remains reasonably constant, whether information is plotted every hour or once a week.
The longer the timeframe, however, the more accurate the technical analysis would be, as the greater the liquidity expressed in the market action. Since technical analysis practitioners from the 1970s to the early 1990s typically did not have access to software that could produce mathematical indicators, as opposed to mathematical indicators, the earlier adopters of technical analysis appeared to concentrate on charting patterns. Many of these people continue to stress the value of charting patterns over mathematical metrics to this day.
Technical analysis can also seem unnecessarily subjective to the untrained eye, but the fact is that adequate technical analysis is often applied in a consistent way by traders to produce self-fulfilling trade signals.
