Steemit Crypto Academy Contest Season 4 Week 1 - Crypto Market Technical Analysis by @sadiqxylo
Hello Everyone...!!!
It is the first week of the season four of the steemit engagement challenge contest. I am much grateful to be presenting my entry on this week task, "Crypto Market Technical Analysis".
How would you define Technical Analysis in the Crypto ecosystem? Mention its Importance.
Technical analysis is very important in the life of a crypto trader, especially with scalp traders. Your knowledge on technical analysis determine your success in the crypto market. Traders who lack technical analysis can only trade with spot trade to prevent the losses of future trading.
Technical analysis: it is a strategy employ on crypto or stock charts, taking into consideration the past price movement and volume of an underlying asset to predict the current or future trend of such asset. Every trader has a different way of analyzing his/her choice of asset.
It involves taking some time to study the chart of an asset, it can be just a minutes, hours, days, weeks, months or even years. Traders after this analysis develop a trading strategy in a form of chart pattern, combining indicators, and others, to identify important signals like support and resistance levels, breakouts, reversal trends and many more, to spot entry and exit positions in the current or future market. Some of these trading patterns are trendline analysis, triangular pattern, rectangular pattern, double top and double bottom etc. some of the indicators are Bollinger bands, EMA, TEMA and so on.
From the psychology and believe of crypto trading, assets movement repeats the trend after certain period and so traders capitalized on this with technical analysis to take advantage of market volatility. The indicators used in technical analysis are developed based on the believe of human psychology.
Importance of Technical Analysis
Uses past market data to predict current or future market trend.
It helps traders to identify general market trend and now decides either to enter in a short position or long position.
It helps traders to spot important signals like support and resistance level, overbought and oversold, breakouts and mark entry and exit positions with these signals.
It gives traders' confident on the position they opened.
It helps traders to maximize their resource.
Do you have practical knowledge of how to conduct technical analysis? Highlight some of the components of Technical analysis.
Yes I do have knowledge on how to conduct technical analysis, I have been in the crypto market for over a year now and all I do is to spot trading opportunities with my technical knowledge, to benefit from market fluctuations. I have developed trading strategies like chart patterns and the use of indicators to analyze charts with different timeframes.
Components of Technical Analysis
There are several components that constitute technical analysis, these components can either be use alone or combined to confirm signals, some of these components include price chart, indicators, chart patterns, volume and price etc.
Candlestick Charts
This is the traditional technical analysis that was first used in price analysis. It involves the use of chart lines to predict trend of an asset. There different candlestick charts and some are Heikin-Ashi Charts, JC charts, Japanese candlestick charts etc. I mostly use the Japanese candlestick charts which is very popular and reliable.
.png)
The Japanese candlestick charts are of two different colors, red and green. Red candle indicates a bearish candle and green candle indicates a bullish candle. Aside this color difference, each candle has four price points, high, low, open and close. Open and close points indicates the closing and opening price points, while high and low indicates the lower and higher points obtained. The height of each candle signifies the strength of the bullish or bearish candle.
Chart Patterns
This involves the use of trendlines and strong support and resistance level to identify increasing supply and demand positions. At the support level, a decreasing trend is expected to end and a reversal in increasing trend take over, at resistance level an increasing trend is expected to end and reversal in decreasing trend take over.
.png)
.png)
At resistance level, the supply force increases putting sellers in consolidation state which gradually push down the price while at support level, the demand force increases putting buyers in a consolidation state which gradually push up the price.
We can as well make use of bullish and bearish trendlines to spot out dynamic support and resistance for trend continuations and break outs. As the price forms higher highs, a dynamic support is identified and as well a dynamic resistance is identified in lower lows.
.png)
.png)
There is possible bullish breakout when price break the resistance trendline that forms the dynamic resistance and as well a possible bearish breakout when price breaks the support trendline that forms the dynamic support.
We can form different chart patterns like double top and double bottom, triangular and rectangular patterns to spot breakouts and identify entry and exit positions.
Price and Volume
This is mostly used buy people who have little knowledge in technical analysis. Over certain timeframe price either increase or decrease. When price of an asset is increasing, a signal for buy position is indicated and as well as sell position when an asset price is decreasing.
With volume, it indicates the number of tokens or assets traded in a particular period. This jurisdiction can be use with price action to spot buy and sell positions. When price action is decreasing with increasing volume, it signifies a strong supply force and shift of momentum to sellers in the market. When price is increasing with increasing volume, it signifies a strong demand force and shift of moment to buyers in the market.
.png)
.png)
Price and volume help in determining the strength of the market and when control of market is shifted between buyers and sellers.
Indicators
Technical indicators play a very important role in technical analysis as it is developed based on human psychology and past price data. It will be discussed in the next question.
What do you understand by technical indicators? Do you consider them effective for trading cryptocurrency? Which one is your favorite and how does it work? (Screenshots required where necessary)
As mentioned earlier, technical indicators are developed based on psychology of historic price data derived from mathematical patterns and utilized by traders to predict future trend and make market decisions. Technical indicators are not 100% perfect and give signals based on certain percentage following the behavior of the market.
Technical indicators are of different forms and perform different functions but with one agender, to predict the future price of the market. Based on their functions technical indicators can be grouped into four types,
Trend Indicators: these indicators follow current price movement and indicates the direction of trend. It moves up for uptrend and down for downtrend, it can actually perceive the presents and absent of trend. Examples are MA, ADX and Ichimoku.
Oscillator Indicator: It identifies market momentum on a particular assets, they also oscillates to price movements just like trend indicators. Project upwards in bullish market and downward in bearish market. Examples are RSI, Stochastic MACD CCI etc.
Volatility Indicators: These indicators measures market fluctuations of up and down swings. Either the market is less or much volatile. Examples are Bollinger bands and ATR.
Support/Resistance Indicators: These indicators ideally mark out support and resistance levels on charts. Examples are Pivot points and Donchain Channels.
In general, all these types of indicators performs the following functions; spotting reversal trend, trend in the market, breakouts, trend continuation, strength of trend, entry and exit positions, market volatility and many others.
Do I Consider Them Effective?
Of cause I consider technical indicators very effective. In all my trading strategies I have employed indicators with chart patterns to make market decisions. As I mentioned, indicators are not perfect and give possibilities based on market behaviors. To have more accurate signals, I usually combine two to three indicators in my strategy and test with different timeframes. We have instances where indicators will give out false signals especially when using volatility indicator for the function of trend following.
My Favorite Technical Indicator
Well, I don't usually believe in a single indicator but the indicator i use in all my trading strategy is Ichimoku cloud of the Ichimoku indicator. Ichimoku indicator is a technical indicator that has several lines and was developed by Hosoda Goichi, a Japanese journalist. The indicator alone can be used to calculate market momentum, identify support and resistance levels and also predict trend.
As I said, the indicator consist of several lines but the only part I utilized most is the cloud Kumo. The cloud a lone can function all the duties of the other parts of the indicator. The Ichimoku cloud is the space between the two line, Senkou Span A and Senkou Span B.
How Ichimoku Cloud Works
Ichimoku cloud can be used to perform several trading signals like identifying trend, spotting dynamic support and resistance levels, market volatility and reversal trend.
Trend with Ichimoku Cloud
In an uptrend market, the cloud is seen projecting upwards in the direction of price line and emit green color below price movement. Senkou Span A is seen above Senkou Span B.
.png)
In a downtrend market, the cloud is seen projecting downwards in the direction of price line and emit red color below price movement. Senkou Span B is seen above Senkou Span A.
.png)
In a sideway market Senkou Span A and B move in flat level with cloud in horizontal movement while price move within cloud and creates no range. several twist occurs in sideway market between Span A and B.
.png)
Market Volatility with Ichimoku Cloud
In a great volatile market, the cloud is very wide as a result of Senkou Span A and B being far apart, While in less volatile market cloud is very small as a result of narrow of Senkou Span A and B.
.png)
Dynamic Resistance and Support with Ichimoku Cloud
With dynamic support, as price moves in an uptrend with higher highs, cloud move below price of which price rebounded and retrace, while with dynamic resistance price moves in downtrend with lower lows, cloud move above price line of which price rebounded and retrace back.
.png)
.png)
Reversal Trend with Ichimoku Cloud
The technique for determining reversal trend is a called twist. In a reversal trend there will be twist between Senkou Span A and B. When Senkou Span A crosses above Span B and cloud move below price emitting green color, then a reversal from bearish to bullish trend has occur. When Senkou Span B crosses above Span A and cloud move above price emitting a red color, then a reversal from bullish to bearish trend has occur.
.png)
.png)
Upon all these activities that can be performed by Ichimoku cloud, I do not use it alone, I usually combine the cloud indicator with RSI and MA crossing to confirm signals.
Highlight the advantages and disadvantages of technical analysis. What's your advice to anyone about it?
Advantages of Technical Analysis
Technical analysis help traders to mark entry and exit positions with different timeframes.
Technical analysis provides traders with indicators which predict future market trend and help traders to prepare ahead.
Technical analysis provides traders with trading bot to automatically spot good trading opportunities to execute buy and sell orders.
Technical analysis allows traders to combine several indicators and trading patterns to filter out false signal.
Technical analysis provides historic price data of any asset, allowing traders to backtest their trading strategies before actually implementing it into current trades.
Disadvantages of Technical Analysis
Technical analysis is dependent on the knowledge of the trader and does not provide 100% percent accurate in identifying signals.
Even after combining indicators and trading patterns, technical analysis is still affected by market sentiment and fundamental back ground of an underlying asset. For instance, in the case of LUNA, technical analysis showed the asset rebounding to trace back to its price but LUNA eventually went to insignificant digits.
There is a claim that history does not repeats itself and that the whole concept of technical analysis is not accurate putting a limitation on the concept of technical analysis.
My Advice
Technical analysis does not come by itself unlike sentimental analysis in which the trader depends on news and article for hints. Technical analysis is conducted by the trader and each trader has its unique trading strategy that work for him/her. In conducting technical analysis, one should always test his/her trading strategy with different timeframes and also backtest it to see if it works with previous market signals. In employing indicators into our trading strategies, we should always combine these indicators to filter out false signal and also try with demo account before actually investing.
CONCLUSION
Well, to be a crypto trader there is the need to have much knowledge of technical analysis. Fundamental analysis will only help in long term trading, but to profit from market fluctuations we acquire much knowledge of technical analysis.
Hi sadiqxylo.
Congratulations for your good participation, it's not wasted. Certainly the technical and fundamental analysis gives us a broader view of the fluctuations that can have the cryptomarket.
Greetings and much success.
Thanks for your time
Thorough reading your detailed post I learned much new things about Technical Analysis. It's importance to traders. Some new indicators to learn for me as well. I am a kind of person who live in MACD, EMA, MA, RSI type of indicators. As level trading experience. Well technical analysis also benefit us in form of making us strong in our trade. As you write.
I have also use these indicatorsyou have listed many times but my favorite is the Ichimoku cloud. I do combine it with RSI and MA crossing. Thanks for your time.
That's great.
Well said. Technical help traders and investors identify possible price movement outcome. I believe this to be an essential part of trading.
A written content this is, thanks for sharing.
My pleasure 😇
Very nice post to read,
You have explained every point well, and I, as a beginner, think the indicator you are using is a layman for me, what is clear is that I know that every indicator will give us convenience and help to analyze market price movements and minimize losses.
Good luck for the contest
👍👍👍
Thanks for your time.
👍👍👍
Yes I agree with you. In the life of every trader technical analysis is very important as it is a tools that give us more view and lead us to better trading.
The truth is that as a trader if you want to achieve success then technical analysis should always be on your mind at all time whenever you think of buying or selling off your assets.
You have written so well thank you for sharing your post with us.
Thanks for your time
Yes with TA traders trust their knowledge and also keep safety measures intact like SL.
You are right . Risk management is important comment of TA. It is though various comments of Risk management like Sizing , SL/TP we can maximise our gains and minimize our losses.
Good luck
Thanks for your time
Good evening friend,
You wrote perfectly man, and you really arranged your post awesomely, in a manner that any one who whise to go through it will understand.
thanks for sharing friend,
You actually made the best advice here, trading using technical analysis is so important in price prediction, although it's not 100% effective, it's really important.
wishing you success
Thank for your time buddy.
Great explanation about the technical Indicators.Using more than one indicator helps in the accurate predictions to the traders.Thanks for sharing.
My pleasure