how to analyze crypto market trends

How to Analyze Crypto Market Trends for Better Decisions

Do you know that there are over 5000 cryptocurrencies out there? So, without analyzing tokens, it is difficult for both beginner and advanced investors to decide the appropriate crypto to invest in. Learning how to analyze crypto market trends lets you make money easily and be profitable. In order to understand how to read crypto charts and make good trades, doing a sound technical analysis is crucial.

For it, you must first understand the Dow Theory which describes market trends and their behavior. In this post, we will first cover the major tenets of Dow Theory and then move on to technical analysis. So, you will find out how to read cryptocurrency trends confidently.

Key Takeaways

  • According to the Dow Theory, the stock market can be used to find out economic business conditions.
  • Analyzing the stock market conditions helps you identify crucial market trends.
  • Reading crypto charts helps you analyze price movements and find patterns essential for technical analysis.

Understanding the Dow Theory and Its Main Tenets

The Dow Theory, created by Charles Dow in the 1800s, explains market trends and their behavior. According to him, the stock market could be used to determine economic business conditions. By analyzing these conditions, you can recognize significant market trends. This theory says that the market takes into account every factor during pricing.

So, the prices of the current assets reflect all the earlier and future stock details. A market analyst can put their attention on only the coin’s price instead of the variables that affect the price.

The Dow Theory relies on six main tenants. These are as follows:

1.   The market moves in three ways

The major market movement is the primary movement. It can be bullish or bearish and can last from one to several years. The medium swing is the secondary movement. It happens anywhere from ten days to three months. Trends in this movement are measured as primary price changes. A short swing is minor and is a short-term speculation in the market.

2.   There are three phases in the market trends.

The three distinct phases of a market trend are the accumulation phase, the public participation phase, and the distribution phase. The first phase occurs when the market sentiment is majorly negative in a bull market. It can also be positive during a bear market.

In this phase, a new trend is commencing. It either accumulates ahead of an upward movement or dispenses ahead of a downward movement. In the second phase, the market begins to follow intelligent investors. This is because it realizes that a primary trend has started and takes advantage of rising price movements.

The final phase is the excess phase, wherein panic begins to set in. The wider public keeps speculating while the trend is nearing its end. Smart investors begin to re-dispense their holdings in the market.

3.   The market integrates the most recent information.

The rates of an asset modify to consider the newest news. The asset price reflects the sentiments of market participants. Factors like interest rate shifts, earning speculation, revenue projections, elections, and product initiatives are integrated into the market price.

4.   Stock market averages must correspond.

An increase in one firm should increase the other if the two companies are connected. If you find the performance of one company improving and the other decreasing, it indicates a market trend reversal.

5.   Volume confirms market trends.

When there’s a rising trend, there’s an increase in the volume of shares stranded with an increase in price. But in a downtrend, the volume decreases with a reduction in price. If a market witnesses a bearish secondary trend with a lower volume, it implies that the secondary trend is weak. But if the volume is high during the secondary trend, it implies that market participants are beginning to sell.

6.   Trends exist until a clear reversal.

Trend reversals should be treated very carefully. You must not confuse reversals in primary trends with secondary ones. The market stays in trend even if there is ‘market noise.’

Reading Crypto Charts and Analysing Market Trends

Reading crypto charts is crucial when trading crypto. It helps you to assess price movements and find patterns essential for technical analysis. A crypto chart contains the following elements:

  • Trading pair – It shows the BTC, or base currency, and the USDT, or the quote used in a specific market.
  • Current price – It shows the existing price for the BTC that is purchased or sold in return for USDT.
  • High/low – It showcases an asset’s lowest and greatest price over a day’s time.
  • 24H volume – It indicates the amount of BTC that’s traded over the previous day. 24H volume shows as USDT.
  • Unit of time – You can choose the time increment you want to be expressed in a trading market. They can be anywhere from one minute to one month.
  • Trading volume – In a small trading volume chart, separate bars showcase an asset’s trading volume matching the candle being displayed. Longer bars showcase greater trading volume. A green bar shows a price increase, and the red one indicates a price decrease.

Knowing these tenants is crucial for crypto technical analysis for beginners.

Understand the candlestick chart.

For anyone who wants to learn how to read crypto charts for day trading, analyzing candlestick charts is essential. Every candlestick or the red and green vertical bar is a set of data connected to an asset’s price over a specific time. A red candlestick indicates that a crypto’s price closed lower than its opening price. A red candlestick is also a bearish candlestick, and in some markets, they are black instead of red.

A green candlestick shows that a crypto’s price closed higher than its opening price. These are bullish candlesticks, and, in some markets, they will appear white instead of green. Every candlestick on a crypto chart has an open price, high price, low price, as well as a close price.

The body of every candlestick shows the opening and closing prices, and the top wick shows the highest point of a cryptocurrency. The bottom wick indicates how low the price got. A long wick at the top of the body suggests that traders are taking profits. Also, it suggests that a sell-off can occur. In contrast, a long wick at the bottom implies that traders are purchasing assets whenever the price drops.

Similarly, if the body occupies the most space in a candlestick and has short wicks, it indicates bullish sentiments. If the candlestick does not have anybody and there are long wicks, no buyers or sellers are in control. Candlestick charts are thus a great cryptocurrency analysis tool.

Levels of support and resistance

You can do cryptograph analysis live through support and resistance levels. A support level is one where the asset’s price reverses its trend. It is a pre-determined level, and traders often purchase at this level. The resistance level is contrary to the support level. It is the point where the asset does not increase. Experienced traders sell at this level.

Moving averages

This technical indicator eliminates the noise by producing a standard price for a specific cryptocurrency. Some common moving averages are used for 50, 20, 10, and even 200-day periods.

A 200-day moving average is regarded as a support level and resistance level during an uptrend and downtrend, respectively. You can calculate a simple moving average (SMA) with the following formula: SMA = (A1+A2+…An) /n

Here A indicates the average in period n, and n indicates the total number of periods. Moving averages are based on earlier prices. Traders use them as indicators to sell or buy assets.

Golden cross

The golden cross occurs when a short-term shifting average goes above the long-term moving average. Here’s how to read cryptocurrency trends using the golden cross system.

  • In this system, 50 EMA (short-term) and 200 SMA (long-term) are the most reliable moving average values.
  • In an uptrend, the price is over 200 SMA and 50 EMA. It shows bullish short-term and long-term traders.

Relative strength index (RSI)

RSI is a momentum indicator that measures if an asset is oversold or overbought. You will find it as an oscillator, implying a line between two extremes. This indicator employs a 2-week timeframe. A cryptocurrency is believed to be oversold when its worth goes below 30. Similarly, it is overbought when its value goes over 70.

Final Words

Learning how to analyze crypto market trends through technical analysis is crucial to uncover the best opportunities. It is difficult to identify patterns and create a sound investment strategy. But learning to do technical analysis will help you make the most informed decisions.