What is Technical Analysis

A Technical analysisIn contrast to fundamentalist analysis, which assesses the intrinsic value of an asset, technical analysis is based on the principle that "price discounts everything" — that is, all relevant information is already reflected in the current price.

In the cryptocurrency market, technical analysis is an essential tool for traders of all levels, as it helps to identify entry and exit points, define stop loss levels, and assess the strength of trends.

Fundamentals of technical analysis

The Three Basic Premises

Technical analysis is based on three fundamental premises:

  • The price discounted everything:All information – fundamental, political, psychological – is already reflected in the price.
  • Prices move in trends:Once established, the trend tends to continue until clear signs of reversal appear.
  • The story repeats itself:Human behavior patterns repeat each other, creating recognizable graphic patterns

Types of graphics

The three most used types of graphics are:

  • Graph of Lines:Connects closing prices with a continuous line. Simple and clean, ideal for viewing general trends
  • Graph of bars (OHLC)Showing the opening, maximum, minimum and closing of each period.
  • List of candlesticks:Each candle shows opening, closing, maximum and minimum with intuitive visual representation

Support and Resistance

Support and resistance are the most fundamental concepts of technical analysis:

SupportiveThe more times a support level is tested andined, the stronger it becomes.

Resistanceand the opposite: a level where supply historically exceeded demand, preventing the price from rising further.When a level of resistance is broken, it often turns into support and vice versa.

Trends and trend lines

Identify trends and the most important skill of technical analysis:

  • High Tendence (Bullish)Sequence of tops and ascending funds
  • The downward trend (bearish)Sequence of tops and bottoms descending
  • Lateralization of range:Price oscillates between support and resistance without a defined direction

The more points of contact, the more reliable the trend line.

Moving Mediums

Moving averages are trend indicators that smooth the price action:

The Simple Moving Average (SMA)

The most commonly used SMAs in crypto are 20 (short-term), 50 (mid-term) and 200 periods (long-term). The SMA 50 cross over SMA 200 is called the "Golden Cross" and is considered a high signal.

Exponential Moving Average (EMA)

Give more weight to the latest prices, reacting faster to changes. 12 and 26 period EMAs are the basis of the MACD indicator. Short-term traders often use 9 and 21 period EMAs.

Essential indicators

RSI (Relative Strength Index)

The RSI measures the speed and magnitude of price changes on a scale from 0 to 100.Values above 70 indicate overbought (possible correction), while below 30 indicate overselling (possible recovery).

MACD

MACD (Moving Average Convergence Divergence) shows the relationship between two exponential moving averages.The intersection of the MACD line above the signal line and a purchase signal, while the intersection below is a selling signal.

Band of Bollinger

Composed of a central SMA and two standard deviation bands, the Bollinger Bands measure market volatility. When the bands contract (squeeze), a strong directional movement is nearby.

Volume of

The volume confirms price movements. High accompanied by increasing volume and more reliable than high with decreasing volume.

Classical graphic patterns

Graphic patterns are recognizable formations that indicate continuation or reversal of trend:

  • Head and Shoulder:Reverse pattern that signals the end of an uptrend
  • Double bottom and top:Reverse pattern forming the letter W (background) or M (top)
  • The Triangles:They can be ascending (altist), descending (bassist) or symmetrical (neutral)
  • Flags and Flames:Continuation patterns that indicate a pause before the trend resumes
  • Cup and Handle:A high-altitude pattern that resembles a shicara with alca

Management of Risk

Risk management is as important as technical analysis itself:

  • Stop the Loss:Always set a stop loss level before entering a trade.
  • Risk and reward ratio:Search for trades with a minimum ratio of 1:2 (risk 1 to win 2)
  • Size of Position:Never risk more than 1-2% of your capital in a single transaction
  • The Diversification:Do not concentrate all your capital on a single asset or position.

Tools and Platforms

The best tools for technical analysis of cryptocurrencies include:

  • by TradingView:The most popular platform for graphical analysis, with a wide range of indicators and drawing tools
  • Coinigy :Professional platform with access to multiple exchanges and advanced tools
  • by CryptoWatch:Real-time charts with data from various exchanges

Common Mistakes of Beginners

  • UsedMany indicatorsIt generates conflicting signals.
  • Ignoring theRisk managementOperate without stop loss
  • Looking for O“Perfect indicator”That does not exist
  • Operating inVery short timeframesWithout enough experience
  • LeaveEmotionally(Fear and gain) influence trading decisions
  • Do not keep oneDiary of OperationsEvaluate performance

Technical analysis is a skill that requires continuous study, disciplined practice and humility to recognize mistakes.