Introduction
Welcome to our Technical Analysis Guide.
In this guide we'll cover the basics of Technical Analysis, from now on called TA.
With TA you can determine the trend and support & resistance levels. With this knowledge you can make your considerations:
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After reading this guide you can determine the trend by using our Market Tools!
Three Trends
Before we’re going to start trading, we want to know the overall direction of the market. A smart guy named Richard Dow recognized that the market moves in trends and cycles. The Dow theory says there are three trends to market movement:
Primary Trend
Secondary Trend
Minor Trend
The primary movement is what it’s name suggest; primary. This is the overall direction measured over a larger time frame. Yet during an overall advance, there are secondary trends in the opposite direction, shorter time periods where the market has certain pullbacks. These declines are within the overall advance, and even within the declines or pullbacks, there are minor trends.
The market fluctuates. The trend is not moving in a straight line. Whether the overall market is advancing or declining. It is going to zi-zag, so when placing your money in the market, you must know what the primary trend is.
The primary trend is the most important of the three trends and will dictate whether you make money or not.
Determine the trend
Determining a trend in the market is quite simple. We want to know if the market is advancing (bullish) or declining (bearish).
The charts underneath shows that during and advance, we can speak of higher highs and higher lows.
During a downtrend or decline in the market, the opposite is happening and the market is making lower lows and lower highs.
Support and resistance
The price of a coin or token often moves between different price levels. Certain price levels are, for whatever reason, of certain significant.
These price levels function as a support and resistance for the trend.
For example, last November the 58k - 60k range was an important support level for BTC. When the price dropped to this level, a lot of people bought the token to prevent it from dropping further. However, as more and more people began to sell when the price reached this range, it eventually broke the support and began to act as a resistance, causing the price to drop whenever it approached the 58k - 60k range.
Putting everything together
How can we combine the acquired TA knowledge so that we can consider whether to trade? We first look at which trend we want to trade. We see in the image below that the primary trend is going down but the secondary trend is actually going up. Trading against the primary trend involves more risk. It takes personal consideration whether you want to trade in the secondary trend.
If you do want to trade in the secondary trend we'll take a look at the support and resistance levels. As you can see, the price of BTC is now in the 50k - 52k range.
The current resistance level for Bitcoin (BTC) is 52K. Many traders are of the opinion that BTC is not worth more than this price, and so they are selling at this resistance level. If the price breaks through this level, it means that more people are convinced that BTC is worth more than 52K. The next resistance level is then examined, which is likely around 54K - 56K.
At this point, three scenarios could potentially occur: a breakout to the top, a breakout to the down, or the price keeps going sideways. The best thing to do at this point is to wait for confirmation of the breakout, as it is safer and more profitable to trade with the uptrend. If Bitcoin breaks through the resistance, traders can configure strategies from the bullish segment. Swing Meister (Premium) is a good choice, as the price is expected to move a lot. Bull Rider could also be an option, as it is an aggressive scalper and the next resistance level is relatively close.
If BTC gets rejected and breaks down to the downside, a tactic which can be applied (though it involves more risk) is to configure strategies from the bearish segment. The strategies can be configured before the breakout. Volatility Hero
If the market goes side ways and you want to make small trades in the sideways market, you could deploy Altcoin Scraper since this strategies aims to make small trades by scalping coins in the bear market.
Always conduct your own research before trading!
For more elaboration on this topic check out our Strategy Guide and Risk Management & Triggers