The Rise and Rise of Technical Analysis in Crypto

If you’ve been active in investing the chances are that you have been  in the crypto space at all you’d have heard about technical analysis. Counter is an exchange that aims to bring the security of decentralized exchange to serious retail traders. So today, we’re taking a look at technical analysis – what it is and how it fits into the crypto traders toolbox.

What is it?

Technical Analysis (TA) is a trading discipline adopted by traders with the primary aim of identifying actionable trading opportunities based on an analysis of the history of price action for a given asset or instrument. Though TA is a broad study and the given definition is may not be all-encompassing – it certainly serves its purpose in describing the art of Japanese candlestick charting which has recently become very popular with traders, particularly digital asset or “crypto” traders.

Image result for Munehisa Homma

The discipline is thought to be traced back as far back as 18th century to the “father of the candlestick chart”, Munehisa Homma, a Japanese rice trader and popularized in the modern west by Steve Nison in his book, Japanese Candlestick Charting Techniques

How does it work?

TA is rarely used on its own but is most often used in combination with fundamental analysis. Where fundamental analysis considers the intrinsic value by assessing economic, financial and other qualitative and quantitative factors, TA it purely focused on the interpretation of price history.

It is important to understand that the psychological aspect of the market is critical to trading success, that price action is a product of the human supply and demand – a trader’s emotions (as well as the collective emotions of traders) will have a significant influence on the price of an asset or instrument and can create identifiable trends and patterns.

In the modern era TA can be distilled into three main assumptions:

  • The market discounts everything – critics of TA will point out that the discipline is flawed because it does not consider enough tangible evidence to properly determine value. TA assumes that all market factors are baked into price.
  • Price moves in trends and cycles – prices can move in trends and cycles in the short-, medium and long term.
  • History doesn’t repeat but it rhymes – due to the cyclical and psychological nature of markets which, from afar can look relatively erratic and unpredictable, they can actually be fairly predictable when considering the emotions influencing supply and demand.

How is it used?

TA is practiced with the use of tools which are commonly referred to as “indicators”. There are many types of indicators:

Price trends and chart patterns

This is a general analysis of the market structure. A trader can identify trends by looking at natural support and resistance levels created by local price highs and lows which tend to exert a natural flow to the price action.

Oscillators

Oscillators visual representations of mathematical formulas as a product of price action. They are most often used in conjunction with other tools and are particularly handy in determining short term trends in assets or instruments which price action is difficult to read. For example, Relative Strength Index (RSI)

Moving Averages

Moving averages are well known and widely used TA tools. The Simple Moving Average (SMA) is, as you may expect, the simplest one and is calculated based on the closing prices of an asset within a given time period. Another example is the Exponential Moving Average (EMA)

Others

Indicators like Stochastic RSI and MACD are derivatives of other indicators. The Stochastic RSI for example is a derivative of the regular RSI and the MACD is calculated as the difference between various moving averages.

Image result for candlestick technical analysis

How can I get started

If you are trading frequently you may already have seen the TA being applied in various forms. As mentioned before, TA has become highly popular in the crypto space.

Some might argue that TA is especially effective in crypto markets because the intrinsic value of these new digital assets are difficult to ascertain. Rather the supply and demand of these markets are largely driven by speculation and human emotion. The crypto market usually has very low barriers to entry and high volatility which makes it a great place to start practicing with just a small amount of funds.

Here are some resources to get you started:

Candlestick Charting Techniques by Steve Nison

Steve Nisons book is arguably what sparked the flame for TA in the modern west. It’s fairly pricey but it’s the go-to introduction into Japanese candlestick charting which is by far the most popular tool of any TA trader.

Babypips

Babypips has a free learning resources called the School of Pipsology. The course is great for anyone who wants to get started trading but doesn’t know where to start. The course if focused on traditional assets but the lessons are universal.

Udemy

Udemy have a fantastic https://www.udemy.com/topic/technical-analysis/selection of paid courses to teach you TA. Some courses are better than others but with a little bit of review reading you could find one that suits you.

@CryptoCred Medium

One of twitter’s most loved traders, focusing primarily on crypto as the name would suggest. The reason that Cryptocred has become so popular is largely due to the learning content that he produces for his followers.

Trading View

TradingView is a charting web service which provides access to historical and real time price data on a variety of assets including cryptocurrency and digital assets. If you are inexperienced with conducting TA, you can use Trading View to see the analysis and recommendations of other traders.

Counter

Counter is a lightning fast digital asset exchange aimed at serious retail traders. Counter is integrated with @TradingView – the internet’s most popular charting tool and social network for traders. TradingView is not only simple and powerful but having the ability to publish trade ideas and review them after they have played out is the perfect way to practice and test your TA.

Counter is also a non-custodial (a.k.a “decentralized”) exchange which means that trading on Counter is not only smooth, quick and great for charting but it is also the safest way to trade digital assets.

You can sign up for Counter today using code “HEREFORTA” and get a 50% fee discount for up to 3 months.

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