How to Apply Technical Analysis in Bitcoin Trading?

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How to Apply Technical Analysis in Bitcoin Trading?
How to Apply Technical Analysis in Bitcoin Trading? Image source: Pixabay

Introduction

With an increasing number of traders in the digital currency market, many traders are looking for strategies on the Internet. Most day traders follow the chart to make a profit from the market. However, a good understanding of the technical analysis can give you significant results. A number of patterns and strategies exist in the technical analysis but you need to create your own and follow it. The key is to practice self-control and minimize your mistakes while trading to be a successful Bitcoin trader.

If you’re new to the Bitcoin market, and you’re not sure whether or not Bitcoin trading is right, check it out: why to become bitcoin trader. However, in this post, you will learn how to apply technical analysis in Bitcoin trading.

Technical Analysis for Bitcoin trading

In the investment world, investors mainly follow two methods for making investment decisions, one is the fundamental analysis and the other is technical analysis.

Know More About Technical Analysis

Technical analysis is one of the most versatile methods for short-term traders and day traders. In this method, the trader analyzes past data to identify potential trading signals. Based on historical price movements and volume data, a trader can identify statistical trends. With this data, you can predict future price movements and the strength and weakness of the signal.

Understand the trends

In technical analysis, a trader looks for trends before taking a trade. A trend is the collection of the price points plotted which shows the direction of price movement with time. There are three types of trends: uptrend (bullish trend), downtrend (bearish trend), and sideways trend.

The price points of an asset make higher highs and higher lows, that means the price of the asset goes in the upward direction in an uptrend. On the other hand, a downtrend makes lower highs and lower lows on the chart which shows that the price of the asset is falling. But in a sideways trend, the price of an asset remains in a range and it does not move in any direction.

The important thing to note is that always buy (long position) during an uptrend when the trend start to rally in an upward direction. But, sell (short position) during a downtrend and avoid sideways trends.

Understand Resistance and Support Level

Resistance and support levels are critical zones where there is a reversal of the trend. Resistance is the level at which further uptrend movements are resisted and a higher number of sellers are available at this price level. There is a possible case of uptrend reversal at this level of resistance.

On the other hand, support is a level where the downtrend receives support and the price may move in the opposite direction. In this region, more buyers are trying to support the price level not to fall any further.

Understanding Trading Signal

A trading signal enables you to enter or exit a trade. This means that when you observe that a particular pattern is forming on the chart, you can enter and exit the market. There are a lot of patterns like Simple Moving Average, Bollinger Bands, MACD, etc.

Conclusion

There are a number of patterns that we discussed in the article. But you need to experiment with different patterns and try to figure out which patterns you can read better. What are the trading signals that you can perform better? Once you identify them, practice them until you master those signals. Try to keep your strategy simple and stick to it unless it doesn’t work for you.

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