Successful cryptocurrency traders don’t get there by luck alone. They use different tools to understand the market and apply their knowledge into trading. One of the most common approaches to making smart price predictions is technical analysis. With this approach, traders study the technical charts and isolate significant trends. This data helps them make smarter predictions.
By using technical analysis, the trader will consider the history of the coin of interest with trading volumes and price charts. There are some key points you need to understand before you can make good use of technical analysis.
4 Keys to Using Technical Analysis for Price Predictions
1. There are no Random Price Movements
The first thing you need to know is that there is no such thing as a random price movement. Most price movements follow either short-term or long-term trends. The coin forms the trend, and the price follows the trend to oppose it. You need to isolate trends and profit from them using technical analysis.
2. Everything Counts
The cryptocurrency market puts everything into consideration from upcoming details, existing details, to previous details. All these variables are integrated into the current cryptocurrency prices. The existing price is always a response to all the details available on the coin. You need to interpret what the price says about the sentiment of the market and use this information to make smart predictions.
3. The Price Trumps Everything Else
You need to focus on the price of the coin itself and not the variables that led to the price. Supply and demand are variables that will always affect the price of the coin, but many other factors can contribute.
4. History Repeats Itself
There will always be a stimuli-response relationship with traders. You can use this to your advantage in determining the price direction of the market. Traders will act the same way when faced with a situation they have faced in the past.
These are the four keys to understanding technical analysis. Keep them in mind when you’re studying the technical analysis of the market to make better predictions.