Technical analysis is a wonderful tool to help you make profitable trades and to save your wealth when trades fail. If you have never used or never heard of technical analysis before hopefully this post will help you get started. I understand that many love HODLing but if you prefer to only hold trades for a few weeks to a few months then this strategy is a must.
You probably have seen charts like these before:
But what do all those numbers and lines mean? Here I have shown 4 very popular indicators used on Wall Street: Stochastics, Bollinger Bands, Moving Averages, and the MACD Histogram. What are we trying to find when looking at these indicators? We are looking for entry points and exit points. In another sense we are trying to notice trends that are forming in the price movements so that we can better time our trades.
The stochastic chart (top of the image chart) shows us when our asset is over-sold or over-bought. When over-sold the price will want to come back to normal and rise, where when over-bought will want to fall back to a normal. I use specifically the 10.4.4 stochastic chart and we consider a price "oversold" when the black line shown is below 20. For reference ETH shown has an oversold value of 18.20 for the black line.
The Bollinger Bands (the red lines that generally stay above or below the current price) show us when the asset is overextended. When the price goes outside of the bands, expect the price to fall back inside within a few days. This shows us great entry and exit points when prices are very volatile. Use this indicator to make sure you did not buy while overextended.
Moving averages will show trends in the price over time. I choose to use a very standard 21 day exponential moving average (shown by the solid blue line on the price chart) which is great for telling short term uptrends and downtrends. For the best trading, never hold you asset through a downtrend. To tell if a crypto is in an uptrend, check if the price is above the moving average and see if the moving average's slope is positive.
The MACD (bottom of the picture) is an indicator for visualizing upswings and downswings of price. When the histogram is rising then you are witnessing an upswing forming and vice versa for downswings. It is very dangerous to hold through downswings and is not recommended. Here I use the standard (12, 26, 9) MACD histogram. A great sign for this indicator is when the histogram crosses from negative to positive.
Try for yourself
To get started for yourself to track your crypto, you can use stockcharts.com for free (I am not sponsored, it’s just a decent free to use chart website). I was actually surprised on how many crypto assets they have available to track. To try and find your coin go to this link https://stockcharts.com/freecharts/crypto/ and see for yourself. You also do not have to use this site, if you find a better crypto technical analysis program, then all of this information will still be valuable.
These charts are also customizable and I highly recommend you play around with them and then use the “perma-link” option or just bookmark the link so that you can return in the following days to get an update on how your crypto is doing. If you don’t feel like setting up a chart for yourself or are confused at all in the process here is my link that I use to track Ether: https://schrts.co/dUIuxjqN You can change this to your crypto by changing the ETH in $ETHUSD to your crypto symbol and then pressing "update".
I plan on going more in depth with each indicator and explaining how they work in more detail as well as specific entry and exit strategies using these indicators starting next week. If you have any questions about the indicators or how to use them please comment below. For possible legal reasons I will say:
*This its purely educational and not intended to be financial advice*