Technical analysis basics for cryptocurrency traders

Sound trading decisions in cryptocurrency or any asset, rely on different forms of analysis. One might use some sort of fundamental analysis to evaluate capital and Bitcoin flows along with hash rates, power prices, mining behaviour or active wallets.

The other approach to making trading decisions uses technical analysis or a map of what others have been doing in your market. This is accomplished by evaluating pictures formulated through the depiction of prices and trading volumes on charts.

Charts can be used to make informed speculation on price movements or changes. They can be used as a tool to define your risk parameters, and help you choose entry and exit points.

Technical analysis can also be used to determine where pockets of risk might exist that are vulnerable to being triggered. But first you have to pick your indicators.

Bitcoin 1 year chart with Bollinger bands and MACD. Chart courtesy of
Bitcoin 1 year chart with Bollinger bands and MACD. Chart courtesy of

So many indicators, your head will spin

By exploring different patterns, traders exploit their natural human capacity for pattern recognition. These patterns have various names like cups and handles, wedges, flags, double tops and bottoms, dojis and shooting stars.

Then there are the ominous-sounding ones, like the Death Cross and the Hindenburg Omen.

While technical analysis in its most basic form involves price and volume data, a wide range of indicators can turn it into a quantum physics like exercise. On top of that, you can choose bar,  candlestick or point and figure charts and have them linear or logarithmic.

It’s enough to make your head spin.

So if you want to be successful using technical analysis and avoid analysis paralysis, the first step is to focus on simplicity.

The crypto KISS rule

In this case, KISS stands for Keep it Simple Satoshi.

So when you set up your chart, do you really need more than one or two moving averages?

Do you really need to do Fibonacci retracements and Bollinger bands AND five other indicators at the same time?

Are ten or fifteen indicators more useful and accurate than two or three, or are they a recipe for analysis paralysis?

Or maybe certain market conditions warrant a different set of indicators.

If you are a beginner, technical analysis can be used effectively to build your trading plan using simple metrics. Support and resistance lines can be used for both entry and exits, depending on whether you are looking for breakouts, breakdowns or a range-bound market.

A simple chart of Bitcoin can help you decide entry, exit and stop prices.

As you become more sophisticated, you might explore the use of other elements like squeeze trades using Bollinger bands, or maybe Fibonacci retracements. Incorporating volume into your analysis can help you understand how moves take place, reverse and evolve over time.

Whatever you decide to do with your technical analysis, keep records of your decisions and their outcomes. That’s how you learn to trade like a pro. And as your trading experience expands, the next step is to incorporate the psychological element of technical analysis.

Ether 1 year chart with 30 day moving average and Fibonacci retracement
On year Ether chart with Fibonacci retracement and 30 DMA (

What is everyone else doing with this chart? 

One of the elements making technical analysis work is a collective belief in its efficacy. For a given pattern to perform in a certain way, a certain number of participants have to believe that it will occur.

A range-bound market has a balance between buyers at a certain support level, and a supply of sellers capping the move at a resistance point. As those sellers are cleaned up, and enough buyers accumulate, a breakout may ensue. Now, traders looking at the move may expect a pullback to the previous resistance point on low volume. This indicates a lack of follow-through selling and that it may be safe to enter for a move higher.

So there may be a bunch of new buyers competing at and above resistance because now it’s considered support. But is it?

If traders enter their orders there in anticipation and use stop-loss points, they will probably be somewhere just below that resistance line. And if they are using leverage for the trade, that area is where stops can be triggered, creating a violent avalanche of temporary selling.

How will you use your chart of Bitcoin to take advantage of this selling?

This is something you can use to your advantage if you plan and think it through.

Charts exploit human pattern recognition

Human beings are exceptional at seeing patterns in almost anything. It’s a short cut to help us manage a complex world and conserve mental bandwidth. The science of technical analysis is the accurate collection and presentation of data. The art is finding an effective way of interpreting that data for profit.

Conversely, you also have to be careful not to see something that isn’t there. If you backtest enough, you can always find the perfect pattern, only to go to the poorhouse executing it in real-time.

The market changes frequently, and technical patterns, like the market, tend to get discounted if they are profitable. As each successive trader discovers the pattern, they attempt to anticipate what the others will do, effectively negating its alpha.

Trending, range-bound and volatile markets

Another consideration is what market conditions are at the time. A volatile market may require looking at technical indicators in a different way than a trending or a flat market.

Volatility may have you focused on extremes for reversals where exposure is added into declines and shoveled out into advances. Or you can look at daily ranges to exploit movements in shorter time frames. Here you may be looking for a change in behaviour to a trending market as the market breaks out in one direction or the other.

In trending markets, you can use the system like the one developed with the Turtle Traders. Here you can add risk, pyramid positions and raise trailing stops as the market advances in a trending fashion.

For flat markets, exposure may be reduced, and trading may be exploring upside or downside breakouts from the range, carefully monitoring volumes for confirmation.
Whatever approach you choose to use, technical analysis can help you develop your trading plan and risk management strategy.

Great books for technical analysis

There are many great resources for those planning on going deep into the technical analysis rabbit hole. These include John Murphy’s Technical Analysis of the Financial Markets, at one time considered the “bible” of technical analysis.

Jack Schwager, author of the outstanding Market Wizards books, came out with an excellent technical analysis resource, called Schwager on Futures: Technical Analysis. And those candlestick charts you use were brought back to popularity by Steve Nison with his book on Japanese Candlestick Charting Techniques.

William J. O’Neil’s: How to Make Money Selling Stocks Short, can give you some tangible ideas about how to explore breakdowns in a market or what they look like. And there are also some great insights from the legendary Peter Brandt and his blog at The Factor Report.

Technical analysis services for the crypto trader

In terms of charting services, there are many free ones, and some require a fee. provides a range of charting services, both free and paid. And there’s, which has an excellent free service for various charting needs. The guys at Messari have a terrific free tool as well.

Cryptocurrency traders also typically get access to a variety of convenient and specific technical analysis tools through their exchange. The advancements in AI and machine learning are being harnessed to provide new technical analysis tools to help traders.

The Bitvo's proprietary technical scoreboard with Bitcoin, Ether and Bitcoin Cash displayed
The Bitvo Technical Analysis Scoring System

For example, Bitvo’s clients get access to a Technical Analysis Scoring system as a part of their account. The system helps traders by generating qualitative scoring that reflects the technical condition of individual digital currencies. It does this by aggregating hundreds of technical indicators with artificial intelligence so you don’t have to.

Traders can use the Technical Analysis Scoring system to enhance and confirm their manual technical analysis efforts.

Automated technical psychology analysis

The secret to using technical analysis for crypto trading is to keep it simple and use it as a tool to develop trading strategies. Technical analysis reflects a blend of art and science. The art is in the interpretation and the understanding of the psychology underpinning the use of technical analysis to make decisions.

Stops are located in certain places for a reason. And triggering those stops can result in moves that can vary widely with different market conditions. With an ongoing increase in Bitcoin leveraged trading, understanding where the stop loss bombs are is a competitive advantage.

Combining technical analysis with some fundamentals and something like Bitvo’s Technical Analysis Scoring system can help you see the Bitcoin, Ether or XRP market in new ways.
Used together, you can position yourself to make more informed trading decisions.

(In Part 2 you can explore the quick and dirty way to use support and resistance lines.)



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