In 2021, bored at home in the face of sudden lockdowns and the economic crisis, more and more people are starting to look at cryptocurrency trading.
If you’ve ever considered trading the Bitcoin market or entering money for different types of dogs, you’ve heard about crypto technical analysis … or its worthlessness. Probably.
Let’s face it: Does technical analysis really work in the altcoin market?
Draw a great deal of lines to make it look like you know what you are doing
Technical analysis is a popular way of anticipating the next price movement by looking into the patterns on a crypto market chart.
The dangerous part of technical analysis (in any market) is that history is usually not literally repeated, and people tend to see patterns in the open.
But if you look away from human error, don’t expect too much from technical analysis. The graphic pattern is vaguely repeated. If you see patterns in your work, there are some downsides to guessing what the price will do next. That’s all.
Tool to understand the market conditions
Good technical analysis uses tools to understand the market forces at play.
Good indicator for that are Bollinger BandsTM. In very simple terms, they will shows you the “typical” price of the market you are trading. That is the price towards which that market typically gravitates.
If the price action wanders out of its most typical area, chances are it will start wandering back inside soon. Sometimes it won’t, and that is when something extraordinary is happening.
Crypto markets are all a bit extraordinary
What does it mean that something extraordinary happens on a crypto market?
This could be a fundamental change, for example, China banning Bitcoin. It certainly affects prices in ways that may have been unexpected.
But especially in the cryptocurrency markets, there is another way to shake up the charts: someone who has a lot of money starts trading a low-cap cryptocurrency.
In a very small or new cryptocurrency, this type of whale can require as much as five digits in US dollars.
You can imagine that small emerging markets, like the dog tokens, are very easy to operate. Technical analysis is based on market regularity.
There is no power in a market that does not even have the opportunity to act on a regular basis.
Should you use T.A.?
For many crypto traders, technical analysis is a limited tool, but a very useful one for understanding the charts they see.
This is the way technical analysis should be used – as a device to make sense of a chart.
It is always safer to use technical indicators in crypto markets that belong to more mature markets such as Bitcoin and Ethereum.
With so many people trading it at any given time, it is much more difficult (and more expensive) for a single entity to influence their pricing behavior. What this means for traders and investors is that they can rely a little more on technical analysis.
If you want to learn more about using technical analysis in a rational way that has rhyme and reason, try to look into the Wyckoff method.