Crypto: How to Perform Technical Analysis Pt. 1

Crypto: How to Perform Technical Analysis Pt. 1

When choosing a good crypto project to invest in and when to invest in, "it takes two." *cue the Marvin Gaye song*

Fundamentals of Technical Analysis

What Is Technical Analysis?

Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume.

- Investopedia

Head & shoulders, falling wedge, bull flag, cup & handle - does this sound familiar? Probably not. But these terms refer to candlestick patterns that can form on a chart underneath the crypto asset which can, in turn, predict future movements & prices.

Past price & trading activity can help be valuable indicators of future and current market sentiment. Technical analysis can be accomplished via reading line and/or candlesticks charts.

A simplified line chart is typically what newcomers learn to read first because of its simplistic nature. The caveat of this chart is it doesn't provide any more detail/information on the pricing activity. This was the first chart I learned to read/observe at the beginning of my crypto journey and was fairly useful.

Apps like Coinbase incorporate a line chart for quick reference and you can dive a little deeper by identifying a certain point that resembles a date and certain price point.

Bitcoin "line chart" per Coinbase

After mastering the specifics of the line chart, many investors/traders move on to candlesticks. I think that a proper progression from the line chart can be welcomed (but not needed) in its understanding.

Candlestick charts originated over 100 years ago in Japan when a correlation was found between the price & supply of demand of rice. In addition to this, a discovery was made in relation to the markets being strongly influenced by the EMOTIONS of traders.

Bitcoin "candlestick chart" per TradingView

Candlesticks produce a bevy of information including high and low, regular occurring patterns and the actual size of price movement across a specific time frame. These key data points from candlestick patterns can help make smart and strategic moves in the market at any time.

See the brief diagram below of what each candlestick on a chart represents. A very simple rule of thumb is:

green candle = number goes up


red candle = number goes down

These candlesticks also tie in to the terms "bullish" & "bearish" which are often thrown around in crypto and basically any investment market.

A bullish candlestick is one that is green and represents an upward trend in price movement for the particular crypto over a specific period of time.

Take a look at this Bitcoin ( $BTC ) chart which represents a WEEKLY time frame and I have zoomed in on the October month to show the 3 green candles in particular as they house the exact same data in the diagram above.

Every green candlestick represents a week in October and during that week time frame price for Bitcoin increased and in fact began an upward swing across the 3 week (or candlestick) period.

This data shows healthy buyers, interest, and volume. A great market sentiment indeed. And based on this information a trader can make a decision to possibly take profits on their $BTC or expect the market to cool off after this upwards momentum.

Bitcoin "candlestick chart" per TradingView (Weekly)

The same rules apply to red candlesticks, but it's the exact opposite. People often make the general assumption of red candlesticks equating to bad or misfortune. And I say, not necessarily. If you can take your emotions out of the equation and focus on what the candlestick is providing, you would see that it's valuable data.

If you have a ton of red, that could signal a valuable opportunity to buy back into the investment NOW AT A LOWER RATE. (i.e. red candle = number go down)

Stock Market GIFs | Tenor

Red candles can also signify that market cool off that mentioned earlier has begun or that something happened OUTSIDE of technical analysis, fundamentally to the crypto, news, events or it's surroundings.

But fundamental analysis will be another part to this journey that we have just begun in understanding key pieces of analyzations and how it can make you not only a better trader/investor but also a more learned and emotionally stable.

Hotep & Build. ✌🏽

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