How to use technical analysis in bitcoin trading?
Technical analysts test various trading strategies designed to predict price movements, with different strategies more suited to specific markets or investment styles. Platforms like Quantum AI trading use fundamental analysis and offers the best trading calls. The boundaries between technical and fundamental analysis are often blurred, though there is a distinct difference between them. Technical analysis is based more on past prices, while fundamental analysis considers market data and the underlying value of an investment.
Use of technical analysis in bitcoin trading:
For traders and investors in the crypto market, the technical analysis offers a valuable additional perspective to help form expectations about future price movements. For example, on February 6, 2018, Bitcoin climbed from $6,522 to $7,922 within 48 hours.
The surge was driven by the general upswing in global stock markets that followed a massive sell-off triggered by concerns about inflation and rising interest rates in the US. Bitcoin’s climb was driven by its growing adoption as a haven investment, which was influenced by its 8 percent rise over the preceding 30 days.
The performance of Bitcoin and other cryptocurrencies at a given time can be interpreted using technical analysis. The most commonly used indicators include MACD, Bollinger Bands, and RSI and Fibonacci retracements.
Using these tools, you can make predictions price movements of a particular cryptocurrency through an understanding of the history of price movements across different periods. These tools have been successfully used to predict price movements among fiat currencies, but they are equally effective in predicting moves among cryptocurrencies like Bitcoin, Ethereum, and Ripple. First, let’s discuss everything you should know about technical analysis.
What is technical analysis?
Technical analysis determines the future value of an investment instrument by analyzing its past price performance. It involves studying multiple elements, such as trading volume and investor sentiment, to arrive at a forecast based on historical data.
Technical analysis can confirm or refute a possible future price trend by comparing it with other relevant market factors. It is not necessary to predict the exact direction of the market or whether it will go up or down or remain stable in the future. All that is needed is to make an educated prediction about how the market will behave based on existing trends and patterns. In general, technical analysis involves using charts that display price movements over time and are based on historical data collected over a period of time.
How to use technical analysis in bitcoin trading?
When trading cryptocurrencies, you’ll want to consult a chart or price action to determine the right time to buy or sell assets. Technical analysis can be used in two ways:
1. To predict future price movements of a given asset; and
2. To confirm market trends as they are occurring.
Here is how you can use technical analysis to determine when an asset is likely to increase in value or decrease while it is happening:
1. Find historical information about the cryptocurrency
2. Identify the trends
3. Compare price data from the past with current market data to find a similarity between the two time periods.
4. Leave room for possible changes resulting from your analysis, such as a downward correction or sudden shift in momentum for an asset currently in an uptrend.
Getting Started with Bitcoin Technical Analysis Indicators:
1. Moving Average Weighted (MAW):
Moving Average Weighted is used to smoothen the price movement data and find the underlying trend. It will calculate moving averages of the latest data points and assign a higher weight to recent prices.
2. Relative Strength Index (RSI):
The Relative Strength Index (also referred to as the RSI) is a momentum oscillator based on steady price movements over time. People can use the indicator to determine if an asset is overbought or oversold at a particular time, which can potentially lead to price reversals
3. Bollinger Bands:
The Bollinger bands are also known as standard deviation bands. They are used to measure volatility in the market by comparing the recent price movements with the bands’ upper and lower boundaries.
Stochastic is used to predict an asset’s direction based on past prices. It is a momentum oscillator that compares the current price with future prices for historical data, helping investors determine whether a specific trend is still valid or worth shorting.
Technical indicators are not perfect, but they offer a unique perspective because they rely on multiple facets of an asset rather than just one factor, like the fundamental analysis.
They have been used for decades in the financial industry to predict price trends and help investors make more informed decisions about stock movements. Although technical analysis was initially popularized in equities, it is also widely used today by investors in the digital currency market to predict future trends and make more intelligent investment decisions.
Fundamental Analysis vs. Technical Analysis:
People can use the two theories to help investors better understand Bitcoin. Both consider essential factors that impact the Bitcoin market, including investor sentiment, supply and demand, and forward prices. Technical analysis is based on past trend data. In contrast, fundamental analysis concerns an asset’s current value about critical fundamentals such as its use as a currency or store of value.
Moreover, technical analysis can be used by traders and investors in the crypto market to form expectations about future price movements by evaluating past trends in a single timeframe. For example, you can use technical analysis to predict how much Bitcoin will change in price through various moving averages, Fibonacci retracements, or RSI to establish a pattern that will likely repeat over time.