With the start of a new bull market in cryptocurrencies, more and more investors are rushing into this market, including some inexperienced novice users. For these novice investors, it is crucial to understand and master some basic market analysis methods.
What is technical analysis?
Technical analysis is a method in which investment traders analyze the historical price changes and trading data within a specific investment period, summarize and deduce market patterns, and speculate on future price trends, optimal buying and selling points, and other information.
In the cryptocurrency market, technical analysis is an important tool that helps investors better understand market trends and formulate investment strategies through the study of historical market trends.
The foundation of technical analysis
Technical analysis is an important method in investment trading, and one commonly used tool is the candlestick analysis system. This system uses a large number of chart formulas and indicator data to find patterns and key features of price changes. Although decision-making requires considering numerous technical indicators, it makes the prediction of future price trends more accurate and provides guidance for medium-term and short-term trades. However, this analysis method has a certain learning and usage threshold, requiring extensive learning and practice, constant skill development, and flexible application.
Candlestick analysis plays a significant role in technical analysis, especially in medium-term and short-term trades. However, from the perspective of long-term investment, technical analysis needs to be combined with fundamental research to organically integrate value investment and short-term trading in order to achieve optimal returns.
The core of analyzing trading charts and indicators is to summarize market patterns and grasp market sentiment in order to buy low and sell high and obtain profit from price differentials. Different traders have different analyses and judgments on the same market conditions within a specific timeframe. In the cryptocurrency market, the price changes of mainstream assets like Bitcoin and Ethereum more reflect changes in market sentiment to a greater extent and have a more regular pattern. Therefore, analyzing the historical price trends of these assets is of great reference significance for predicting future market trends.
The candlestick analysis system consists of candlestick theory and candlestick charts. Generally, green bars represent bullish trends, while red bars represent bearish trends (colors can also be customized). These bar charts form candlestick charts, which, combined with indicators such as moving averages (MA), exponential moving averages (EMA), and moving average convergence divergence (MACD), help to comprehensively understand the balance of power between long and short positions in the current market, changes in the strength of buying and selling forces, and the strength of price trends. In practical operations, flexible use of these tools can better guide investment decisions and improve trading success rates.
Contents of technical analysis
1. Trend determination
Before conducting trades, investors need to clearly identify the trend within the corresponding trading period. Trend determination is based on candlestick patterns and support/resistance levels. Only by clarifying the trend can investors choose the optimal buying and selling points.
2. Support and resistance
Support and resistance levels play an important role in technical analysis and serve as reference points for trades. Investors should pay attention to changes in these levels, as they often affect the subsequent price trends.
3. Buying/selling points
Based on candlestick patterns and support/resistance levels, investors can predict the current trend and choose the best buying/selling points. This requires a comprehensive analysis of candlestick charts, moving averages (MA), exponential moving averages (EMA), MACD, and other indicators to fully grasp the balance of power between long and short positions and changes in buying and selling forces in the market.
4. Take profit/stop loss levels
Risk management is a crucial aspect of trading. Setting reasonable take profit and stop loss levels can help investors reduce risk in volatile markets, ensure profit margins, and avoid further losses.
Limitations of technical analysis
Although technical analysis is an effective market analysis method, it is not foolproof. The market changes rapidly, especially in the cryptocurrency market, which is often influenced by various unexpected events. Therefore, technical analysis should be used as a means of assisting investment decisions rather than the sole basis.
In summary, technical analysis is an important aspect that novice users cannot ignore, even if they may not initially have in-depth technical analysis knowledge and practical experience. However, understanding the basic concepts of this analysis method, being clear about its analysis basis and content, and being able to perceive market sentiment through changes in the market can be helpful. Through long-term learning and practice, novice investors can gradually improve their analytical skills and find investment styles and strategies that suit them.
As a leading global financial asset trading platform and the global partner of the Argentine national team, 4E provides professional and accurate candlestick charts to help traders better understand market trends and price dynamics. The platform supports various types of orders, such as market orders and limit orders, allowing you to freely choose according to your trading strategy. In terms of position mode, users can switch between full position and partial position, maximizing risk isolation. When it comes to trending and short-term markets, the platform supports leverage up to 100x, maximizing the utilization of traders’ funds and achieving higher returns. In terms of reducing profit drawdown or losses for users, the platform supports setting predetermined take profit and stop loss levels before opening trades, providing a range of professional trading functions that are not cumbersome or complicated, but rather flexible and easy to use.
In addition to cryptocurrencies, 4E also offers trading of other assets such as forex, US stocks, indices, and bulk commodities like gold. You can also explore investment directions that are more familiar and aligned with your risk preferences.