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Ultimate Guide to Using Technical Analysis Tools for Crypto Trading

Technical analysis is a famous approach traders use to predict the future price movements of cryptocurrencies. Technical analysis is based on the belief that the price of an asset reflects all the available information about that asset.  The concept uses mathematical indicators to analyze statistical trends such as price change and trading volume to predict how the crypto market will go.

By analyzing historical price data and market trends, traders can identify patterns and use them to make informed trading decisions. It also allows traders to exploit the market based on the beliefs such as price moves in a trend.

This article will provide a comprehensive guide to using technical analysis tools for crypto trading.

 

Assumptions In Technical Analysis

 

While technical analysis is a popular and widely used tool for traders and investors, it is based on several assumptions that may only sometimes hold.

  1. Price Moves In A Trend

One of the critical assumptions of technical analysis is that price movements in financial markets tend to follow trends. This means that once a trend has been established, it is more likely to continue than to reverse. This assumption is based on the idea that market participants tend to follow the same behavior patterns and that technical analysts can identify and exploit these patterns.

You can use tools such as candlesticks or PlasBit’s coin list and market trend features to identify patterns such as price movements, 24-hour price change, and 24-hour trading volume. However, as this is an assumption, ensure you use price with other technical analysis tools before trading. 

  1. The Market Discounts Itself

Another assumption of technical analysis is that the market is a self-correcting mechanism that quickly discounts all available information. This means prices reflect all known information about a particular asset, including fundamental factors such as earnings, dividends, and economic indicators.

While this assumption is generally valid, it is essential to remember that markets can sometimes become irrational or inefficient, particularly during extreme volatility or uncertainty.

  1. History Repeats Itself

The third assumption is that history tends to repeat itself, meaning that patterns that have occurred are likely to recur. This assumption is based on the idea that human behavior tends to be consistent over time and that market participants are prone to following established patterns and trends.

Technical Analysis Indicators

Here are some of the technical indicators you should be looking at:

  • Moving Averages

Moving averages are a popular technical analysis tool used to identify trends in the market. Moving averages calculate the average price of an asset over a specific period, and by plotting these averages on a chart, traders can identify the direction of the trend. For example, a 50-day moving average can show the trend for the past 50 days.

 

  • Relative Strength Index (RSI)

The Relative Strength Index (RSI) is used to identify overbought or oversold conditions in the market. RSI measures the strength of an asset’s price movements by comparing the average gains and losses over a specific period. RSI values range from 0 to 100, with values above 70 indicating overbought conditions and below 30 indicating oversold conditions.

  • Bollinger Bands

Bollinger Bands are a technical analysis tool that measures the volatility of an asset’s price movements. Bollinger Bands are calculated by placing three lines on a chart: a simple moving average, an upper band (calculated by multiplying the simple moving average by k times the standard price deviations), and a lower band (calculated by subtracting the simple moving average by K times the normal price deviations). By monitoring the distance between the upper and lower bands, traders can identify periods of high and low volatility in the market.

  • Fibonacci Retracement

Fibonacci retracement is a technical analysis tool that provides insights to traders about when to execute or close trades. The Fibonacci levels are calculated using the golden ratio, a mathematical ratio found throughout nature.

The golden ratio indicates that each number is approximately 1.618 times bigger than the preceding. Traders use these levels to identify potential entry and exit points. Traders can quickly determine the lowest and highest trade swings using this ratio.

Conclusion

Technical analysis tools are essential for crypto traders looking to make informed trading decisions. With the technical analysis indicators, you can curate a working trading strategy with scholarly entry and exit points. Moreover, you can determine how prices will likely swing on a particular day.

The best way to take advantage of technical analysis and make informed decisions is by ensuring you have the best crypto tools to assist your analysis. You may need a coin list from PlasBit, candlesticks, and crypto signals.