A tryst with Volatile Markets
As is well-known, the crypto market is extremely volatile and there are massive price fluctuations. In such an instance, it becomes imperative for investors to follow a strategic plan of action while they are investing. Further, they should also be prepared for various market swings. Understanding crypto trend analysis and identifying crypto buying patterns will help investors make sound investment decisions.
Basics of Crypto Trend Analysis
Before we dive deeper into the crypto trend analysis, here are the two patterns that you need to spot and conclude in order to understand how to position your trade. It is beneficial to place the decision of buying crypto based on these resultant predictions when you observe the patterns.
A Continuation
When a crypto’s price is predicted to follow more or less the same pattern after a brief period, it is called continuation. These patterns occur in the middle of a trend thereby conveying that the trend will resume after the pattern is complete.
A Reversal
When a crypto’s price is predicted to move in the opposite direction from the one it currently is in, then it is called reversal.
Crypto Technical Analysis
While making predictions, an investor needs to look at the charts and analyse what the current and historic prices indicate. Crypto trend analysis is conducted by carefully analysing the technical indicators and forming patterns. The predictions are then made based on these two factors.
Technical Indicators
Technical indicators help place the data in a coherent flow, making it easier to deduce patterns and predict which crypto to buy. One can remove the ambiguity from predictions and arrive at a more informed decision. This can be done based on actual figures, with data being placed together. Here are some common technical indicators:
Candlestick Charts
The candlestick charts can analyse a visual representation of the price fluctuations. They consider four main components – the high price, opening price, closing price, and the low price. By colour coding, the movement, and candlesticks make it easier for someone to draw out a clear pattern.
Green candlesticks represent the closing price on top which is higher than the opening price. The red candlesticks in turn reveal a contradictory trend.
Support and Resistance Levels
The support refers to the level at which the price reaches the maximum possible bottom and tends to move up from thereon. Stop-loss orders can be placed at the support levels to protect investments when they go further down from the support level, reaching record lows. When the prices are about to increase, buying crypto at the lowest level works out to be a significant investment.
Resistance levels are the opposite of support levels. They indicate the peak price the crypto asset achieves before falling again. A sell order at the resistance level can help investors maximise their profits without hoping for the costs to increase even further.
Moving Averages
One of the most popular methods of crypto trend analysis, which is Moving Averages, help determine the direction of the trend. It summarises the data points over time and divides them by the total number of data points considered for the calculation. Since it considers the latest price, it is regarded as a reliable indicator.
Investors can use moving averages to track a golden cross when the short-term moving average is lower than the long-term moving average. Still, when the market reverses, the short-term moving average increases rapidly and cuts down the levels of long-term moving averages, thereby creating a cross on the graph.
Chart Patterns
Once the data is plotted, it is relatively easy to understand the chart patterns and make suitable predictions. One must always look at the patterns before buying the crypto, as it gives a fair idea of the historical performance of the crypto asset.
Triple and Double Tops and Bottoms
In a candlestick chart, when the price touches a consistent level two or three times before reversing in the opposite direction, it is called a double or triple top or bottom. A double top is when the crypto prices reach the same highest level two times before switching to a downward trend. A triple bottom indicates similar lowest price levels touched three times before switching to an upward trend.
These are indicative of a strong support or resistance level. Crypto buying plans can be based on these patterns.
Ascending/Descending Triangles
An ascending triangle is formed when the price highs form a straight line over a period of time, but the price lows form a diagonal line, creating a triangle. This is indicative of consistent price resistance and increasing price support. Therefore, the price wouldn’t fall as low as before.
The descending triangle is the opposite of an ascending triangle.
Parting Thoughts
By using a mix of various technical indicators and chart patterns, investors can learn to predict the values of the crypto assets and create tailor-made investment strategies. However, the crypto market is still highly volatile and carries a fair amount of risk. Making prudent choices before buying crypto is a must for every investor.
