Welcome to our Technical Analysis Guide.
In this guide is we'll cover the basics of Technical Analysis, from now on called TA.
With TA you can determine the trend and support & resistance levels. With this knowledge you can make your own considerations:
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After reading this guide you can determine the trend yourself by using our Market Tools!
Before we’re going to start trading, we want to know the overall direction of the market. A smart guy named Richard Dow recognized that the market moves in trends and cycles. The Dow theory says there are three trends to market movement:
The primary movement is what it’s name suggest; primary. This is the overall direction measured over a larger time frame. Yet during an overall advance, there are secondary trends in the opposite direction, shorter time periods where the market has certain pullbacks. These declines are within the overall advance, and even within the declines or pullbacks, there are minor trends.
The market fluctuates. The trend is not moving in a straight line. Whether the overall market is advancing or declining. It is going to zi-zag, so when placing your money in the market, you must know what the primary trend is.
The primary trend is the most important of the three trends and will dictate whether you make money or not.
Determine the trend
Determining a trend in the market is quite simple. We want to know if the market is advancing (bullish) or declining (bearish).
The charts underneath shows that during and advance, we can speak of higher highs and higher lows.
During a downtrend or decline in the market, the opposite is happening and the market is making lower lows and lower highs.
Support and resistance
The price of a coin or token often moves between different price levels. Certain price levels are, for whatever reason, of certain significant.
These price levels function as a support and resistance for the trend.
An example: Last November 58k - 60k was an important support level for BTC. A lot of people believed this was the minimum price of BTC and that the price will go up again. Hence, every time the price dropped around this price BTC got bought back up aggressively. However, when more and more people sold BTC around this price range the support eventually broke. Then the 58k - 60k range started acting as a resistance level. Meaning that every time that the price came into the 58k - 60k range a lot of people sold their BTC causing the price to drop again.
Putting everything together
How can we combine the acquired TA knowledge so that we can consider whether to trade? We first look at which trend we want to trade. We see in the image below that the primary trend is going down, but the secondary trend is actually going up. Trading against the primary trend involves more risk. It takes personal consideration whether you want to trade in the secondary trend.
If you do want to trade in the secondary trend we'll take a look at the support and resistance levels. As you can see, the price of BTC is now in the 50k - 52k range.
52K is currently the resistance level. Many people seem to believe that BTC is not worth more than this price, so they sell their BTC at this price level. If the price breaks through this resistance level. It means that more people believe that BTC is worth more than 52k. The next resistance level is then looked at in this scenario: This level is at 54k/56k. Three scenarios can happen at this point in time : A breakout to the top, a breakout to the down or the price keeps going sideways: The best thing to do right now is to wait for confirmation the the price broke through, as it is safer and more profitable to trade with the uptrend.
If Bitcoin breaks through the resistance, you could configure our strategies from the bullish segment. Swing Meister (Premium) is a good choice, the price is expected to move a lot. If the next resisitance level is pretty close, Bull Rider could be an option because of it's aggressive scalps.
But what if BTC gets rejected and breaks down to the downside? A tactic which can be applied (though it is a personal consideration since it involves more risk!) is to configure the strategies from the bearish segment. The strategies can be configured before the breakout.
Strategies like Altcoin Scraper Premium and Volatility Hero are designed to try to trade so-called 'bounces' in the secondary trend. When the price drops, there is often a price point in the minor trend where the price is aggressively bought back. These strategies try to predict these points. See the image below.
If the market goes side ways and you want to make small trades in the sideways market, you could deploy Altcoin Scraper. Since this strategies aims to make small trades by scalping coins in the bear market.
Always conduct your own research before trading!
For more elaboration on this topic check out our Risk Management & Triggers