In its most basic form, technical analysis is a trading discipline that uses historical price data to predict market behavior/trends in the future. In many ways, this investment strategy identifies trading opportunities based on the concept that history repeats itself and does so in statistical trends and recognizable patterns.
Unlike fundamental analysis, which attempts to evaluate a cryptocurrency’s intrinsic value based on economic and financial factors, technical analysis focuses on the study of changes in price, volume, and implied volatility.
What is technical analysis?
Technical analysis uses a host of chart indicators, including moving average lines, oscillators, volatility indicators, trend lines, candlesticks, chart patterns, and more. At the end of a technical study, you should identify a trading setup and potential entry and exit points.
Furthermore, technical studies are often used to generate short-term trading signals from these tools when paired with appropriate money management rules.
Cryptocurrency traders may make decisions based solely on the price charts and similar statistics, but successful investors rarely limit their research to technical analysis alone.
As we dig a little deeper, you will find that there has been a constant debate on the best approaches in using technical analysis. Many traders have conflicting opinions on which one is the most productive. As we touched on before, cryptocurrency traders use different trading types in tandem.
In general, technical analysts look at broad types of indicators. As we know, examining chart patterns and order book structure are two of the most powerful strategies that often interfere with your investment decisions. Let’s have a look at both concepts.
Chart patterns
A price or chart pattern is a recognizable configuration of price movement that suggests what a cryptocurrency might do next, based on what it has done in the past.
Widely considered an integral aspect of technical analysis, chart patterns are identified using a single candlestick or a series of trendlines and curves. In practice, there are hundreds of patterns that traders have developed to help them forecast and trade on price movements.
Some formations are focused primarily on identifying the current price trend, while others are meant to determine the strength of a market trend and the likelihood of its continuation.
Chart patterns fall broadly into three main categories
- Continuation patterns, which signal that an ongoing trend will continue
- Reversal patterns, which indicate that a trend may be about to change its current direction
- Bilateral patterns, which occur in highly volatile markets and reflect that the price could move either way
There is no one ‘best’ price pattern in cryptocurrency trading since they are all used to highlight different directions in a huge variety of assets. However, to help you get to grips with them, here are a few chart patterns every cryptocurrency trader needs to know.
- Head and shoulders
- Double top
- Double bottom
- Rounding bottom
- Cup and handle
- Wedges
- Pennant or flags
- Ascending triangle
- Descending triangle
- Symmetrical triangle
Order book
By definition, the term order book refers to an electronic list of pending long and short trades (outstanding buy and sell orders) for a specific cryptocurrency/digital asset organized by price level. An order book lists the number of coins/derivatives being bid on or offered at each price level, which represents the interests of buyers and sellers.
Sometimes, an exchange’s order book identifies the traders behind the buy and sell orders, though most platforms prefer to keep their users anonymous. Either way, these lists improve transparency because they provide market participants with valuable information, offering a window into supply and demand.
Although order books generally contain the same information, their ultimate setup may be slightly different depending on the source.
Zenfuse addresses these inconsistency issues thanks to its powerful functionality, which makes trading less stressful. With an intuitive interface and high affordability, crypto investors are able to trade across more than 90 exchanges from a single platform.
Like most things in today’s high-tech world, trading cryptocurrency has become an everyday activity. That’s why trading on Zenfuse platform is well supported across all mobile devices — as well as desktop and web browsers.
Zenfuse additionally combines easy-to-use analytics, comprehensive portfolio management, news aggregation, for delivery of updates tailored to the user’s portfolio.
Another great feature is ‘Synced Tracking,’ which saves considerable time for the user that would otherwise be spent manually collecting balances from all exchanges and blockchain wallets.
About Zenfuse
Zenfuse is a powerful all-in-one platform for cryptocurrency traders and investors.
It aggregates multiple cryptocurrency exchanges, allowing control of funds via API, and powers up the trading process, making trading more profitable, simple, and stress-free.
Our cross-platform app provides rich analytics of both your portfolio and order history, giving you the ability to control your funds on a mobile device.
