- Technical analysis is a method of forecasting trading opportunities used by traders, analysts, and investors.
- Price action is one of the most accurate strategies for analyzing crypto assets technically.
- Indicators are pattern-based calculations that use the price or trading volume of an asset to assist traders in making decisions.
Technical analysis is a technique of analysis used by traders, analysts, and investors to forecast trading opportunities by analyzing the market and its activities and actions.
These actions can be represented on cryptocurrency trading charts to help in analyzing price movements. These movements will represent the market’s fair value for a certain crypto asset. Patterns emerge within these charts over time, and each pattern creates a different signal.
Even though technical analysis is based on rules, a technical analyst’s task is to recognize these patterns and form an opinion, as technical analysis is subjective and varies from one analyst to another.
Technical analysis is based on two different aspects:
Price Action
Price action is one of the most accurate strategies for technically analyzing crypto assets. You can study past and present movements in the price to discover crucial price levels for the asset. Then, you will use these price levels to anticipate future price movements and set trades based on them.
Indicators
Technical indicators are pattern-based calculations that use an asset’s price or trading volume to help traders make decisions. Indicators are usually used as graphs on charts. Indicators are frequently used by technical analysts to confirm their trades; for example, a trader looking to buy an asset will check to see if the indicators are pointing to a bullish or bearish move.
Here are some of the most used indicators:
Moving Averages
Moving averages are a prominent and often utilized technical indicator representing the average value of an asset’s price over a given period of time.
In this Solana’s chart above, moving averages for a more extended period, such as 200 days (known as the 200-day Moving Average), will act as a strong support level. Solana almost touched the moving averages three times and bounced soon after.
But, once the moving average is above the price level, it will act as a resistance, and the price may fall after rising toward the moving average.
Relative Strength Index (RSI)
The RSI is another popular indicator that measures the speed and rate of change in price movements in the markets.
There are two essential levels in an RSI indicator:
- Oversold level: If the RSI is below the 30 level, it may indicate that the asset is oversold due to fear or panic, and buyers may soon return, causing a reversal in the price.
- Overbought level: This is the opposite of the oversold level, wherein the asset may have been overbought due to a fear of missing out on the profits. This may cause traders to book profits resulting in a fall in the price.
The price reaction to the overbought and oversold levels can be seen above.
Chart Mirroring on CoinPanel
If you are just starting your trading journey and are learning technical analysis, the chart mirroring feature on CoinPanel will allow you to learn different types of trade setups, patterns, and scenarios.
The Chart Mirroring function offers instant access to technical analysis, entry, and exit zones, enabling traders to set trading strategies.
CoinPanel’s Chart Mirroring feature gives traders with any level of experience access to professionals’ and newbies. This also helps investors that have just started trading digital assets can get first-hand insight into setting up their trades.