If you’ve ever traded, you’ve most likely heard of “fundamental analysis” and “technical analysis”. Almost all traders agree that technical analysis is essential to avoid making rookie mistakes. Of course, you can always rely on websites like walletinvestor, but it’s advisable to learn at least the basics of tech analysis to properly grasp the mechanisms of the market.
Cryptocurrencies, a market to follow closely
This market being in perpetual evolution, certain cryptos that are interesting today could be less so tomorrow in favor of other more recent cryptos or presenting advantages according to the economic situation, the news, and the market’s sentiment.
But before you start on Ethereum, Bitcoin or any other cryptocurrency, technical analysis will help you better understand your market.
Technical analysis: what is it for?
When should you take a position in a market, and when should you withdraw from the same market?
This is the question that technical analysis answers.
Technical analysis provides the means to detect and interpret market indicators. Therefore, its role is, to determine with more or less precision when to buy and sell a cryptocurrency.
There are two types of phases in the evolution of prices: the trend and the wait-and-see attitude.
The trend corresponds to a phase of dynamism in the cryptocurrency’s price. It may be an uptrend. In this case, the price of the cryptocurrency increases. Or a downtrend where the asset loses value.
The wait-and-see attitude corresponds to a phase of price stabilization. The price of cryptocurrency most often oscillates between two parallel straight lines.
A typical chart will have a bottom line called support. As its name suggests, it serves as a floor for cryptocurrency prices during this phase. The top line is resistance. It acts as a ceiling. These two lines can frame the course of a cryptocurrency over a more or less long period.
In general, the longer the wait-and-see phase, the greater the magnitude of the exit.
The exit from a stabilization phase can be done according to two scenarios. And depending on either case, investors can deduce bullish or bearish signals depending on their strategy.
When there is a breakout of the support line, if the cryptocurrency price drops below the floor, this is often interpreted as a sell sign. But other indicators are to be considered here before taking any position.
Conversely, if it is the resistance that is broken, the price of the cryptocurrency exceeds the ceiling, then this is often considered a buy signal. But once again, this signal should be interpreted with caution.
Better results depending on the duration of the analysis
The results of the technical analysis will very largely depend on the duration over which it is carried out. This duration generally ranges from a few minutes to several days. Here, the trader’s availability comes into play. The shorter the time unit chosen, the more the latter must be able to consult the different curves of the cryptos several times a day.
In addition, this variable also affects the reliability of the results obtained. A technical analysis over a very short time frame will have a higher proportion of erroneous results or false signals. Conversely, a longer delay will provide more reliable results. But in this case, it will be necessary to wait longer to have the data necessary to detect a given figure.