Does technical analysis work for crypto? Or is it just wishful thinking?

The popularity of cryptocurrency is rising day by day, with more and more people getting involved, the digital currency market gets more complex and harder to analyze. Due to its volatile nature, it is not easy to predict how the cryptocurrency is going to perform, however, that doesn’t stop investors from putting their assets in crypto, as they see it as the future of trading and finance.

With its decentralized nature, crypto is very attractive to investors and young people trying to make easy money. One key difference between the printed national money and crypto is that the latter isn’t controlled by a central authority like the national banks. Instead, crypto is controlled by millions of computers distributed throughout the world. It also offers the users a great secure service and anonymity that you don’t get with the traditional banking methods.

What is technical analysis?

In order to understand the implications of the technical analysis and how it can be utilized to better understand crypto, we first have to take a close look at the concept itself.

Technical analysis, simply put, is the study of statistical trends based on the data on the historical prices, used to identify different opportunities for trading. In order to determine the strengths and weaknesses of assets, the technical analysts observe different trends of price fluctuations, trading signals, and other analytical instruments.

While reading about the trends in cryptocurrency, there’s a chance you came across certain terms that might seem odd if you’re new to trading. These terms are used to describe and differentiate between different types of trends, like uptrend, downtrend, and sideways trend. Traders often refer to these as “bearish” and “bullish”. Term bullish comes from a bull, who figuratively strikes its horns upwards and driving the prices higher, while bearish refers to a bear, which drives the prices down by striking its paws down.

Technical analysis of the crypto

Technical analysis, or TA for short, as we mentioned, offers an opportunity to foretell certain patterns for the future, by looking at the previous trends. Aside from such terms as bullish and bearish, there’s another important concept in crypto TA practice – a death cross. It occurs when the line that tracks the price average of an asset over previous 50 days falls below the line tracking its 200-day moving average.

The appearance of the death cross indicates the beginning of a bearish trend. For example, the last time it occurred on the bitcoin market, in March 2018, in the following nine months, the prices fell by more than half.

As the crypto exchange grew larger, some of the top forex trading robots have entered the market, making it easier for traders to use crypto to their advantage. A Forex trading robot is focused on a variety of foreign exchange signals that can help decide if a currency pair is to be purchased or sold at a given time. Forex robots are designed to eliminate the harmful psychological trading component, which could cost a lot.

There are many skeptics who don’t believe in TA and the forex trading robots, saying that only a human expert can differentiate between the signals that are complex and involve an element of spontaneity. 

For example, when the death cross appeared in October 2019, it was considered unusually bearish. Bitcoin’s price on that day was $8,662 and over the course of the next few weeks, it fell more than $2,000. Some thought that the crackdown on crypto speculation in China caused the price drop, while the TA enthusiasts say that the whole situation was predicted and apparent from the charts.

It seems impossible for many investors in traditional finance, journalists, and other actors in the crypto trading, that traders could reliably make money and avoid losing it by watching two lines crossing each other. But in bitcoin markets, you can’t escape the omnipresent TA. Recent research even showed that TA was only behind high-frequency trading as the most followed investment strategy.

TA was originally designed for markets with a long history of trading, where data is abundant. However, there are those who argue TA is even more critical and beneficial on crypto markets since no one can confidently say what Bitcoin’s fundamental value is, developed only 11 years ago by a tiny group of libertarian computer coders. 

Is it a digital form of gold, a platform to store value, an inflation hedge? The future of money? Or just the incentive for device owners and users who help keep the biggest blockchain in the world going? It might be all of the above, or none of those.

One thing is for certain, that crypto isn’t planning to go anywhere and one should always have their arsenal full of ways to understand and utilize it, out of which TA is one of the most important ones.

DISCLAIMER: Be aware that the activity of cryptoassets mentioned in this article is unregulated. This article must not be construed as investment advice. Always do your own research.

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