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Cryptocurrency is all about volatility. The prevalence of speculation surrounding the small yet increasingly popular market of digital assets is what provokes this volatility. This provocation has mostly to do with the role of media. Due to the changing trends, investors and traders are always on the edge as the severity of headlines can determine the fate of prices (to go up or down).
Therefore, in this case of a dodgy yet popular market, there should be mechanisms that can help keep it afloat, as there are billions of dollars at stake, right? The answer to this concern is that such mechanisms exist, technical analysis being one of them.
What is Technical Analysis?
TA, short for Technical Analysis, evaluates the past and present price movements and trading volumes to read trends through the use of mathematical calculations. Through the use of technical indicators, a visual analysis of this data is presented in charts, also referred to as chart analysis. As a result, these technical steps then predict the future course of the crypto market.
Based on Dow’s theory, Technical Analysis practices three main features in the cryptocurrency market, which are a) the theory of reasoning behind every change in price b) re-occurrences of trends in the market are inevitable, and c) significance of trends.
Technical analysis helps identify both the short-term and long-term trends of the market. They help forecast movement in prices, which, as a result, warns the trader of any significant developments in the market. In an ideal situation, if the technical analysis data works, the media, and all the odds are in your favor, you can profit by making a purchase, when the market price is low and sell when the market price is at a peak.
It must be noted that rather than going in clueless as a crypto trader and suffering a great loss, the idea of technical analysis is to prepare you for the future.
Trend Analysis-Past & Present
The past and current trends can be analyzed to foresee future trends. When we say that trend analysis can help predict the future, we don’t mean that trend analysis can derive what is going to happen, but a mere analysis with the help of technical indicators can help identify a pattern. This way, any major fluctuations concerning the uptrend, downtrend, and sideways trends can be predicted, and precautions to use them in the trader’s favor can be taken before time. Given the ever-changing trends, technical analysis in cryptocurrency is one of the most used tools among the crypto traders.
Identifying the Entry & Exit
With the help of Technical Analysis, the right time to enter a market or to exit, one can be predicted. This information is much useful for the trader as it can result in him scoring a large number of profits or a complete contrast.
Affordable & Quick
As compared to fundamental analysis, which is more rigorous, technical analysis provides timely data at an affordable price. That is because it is quick to identify the direction that the market is going to take by using already available data. The comparisons and the solution that follows can be accessible to the investors in real-time without having to waste time, which is something that is not affordable in the fast-paced market of cryptocurrency.
In the case of repetition in trend, technical analysis is quick to inform the trader of the course of action that is most useful in this situation. Rather than wait till after the trend takes place, technical analysis will issue an early warning. This, as a result, helps the investor to pull all in or all out of the market.