Steemit Crypto Academy Contest Season 4 Week 1 - Crypto Market Technical Analysis

Hello everyone, a warm welcome to the first week of the 4^th season of the steemit challenge contest. I'm indeed happy to be participating in the challenge series this season. I hope everyone joining is happy to do so too.

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The crypto academy community wants participants to discuss crypto market technical analysis. In this post, I will be responding to the assignment given.

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Question

How would you define Technical Analysis in the Crypto ecosystem? Mention its Importance.

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In the crypto ecosystem, trading refers to the processes involved in the activities of exchanging (buying and selling) assets, commodities, cryptocurrency, etc, for the sole purpose of making profits. This is achieved by capitalizing on the price differences of an asset at a given interval, in speculation of either an increase or a decrease in the price of the asset, following the principles of demand and supply.

To effectively trade, a trader or investor is required to conduct some form of market research to better understand what is happening in the market. This research is structured in form of Analysis which gives imperative information about exchange activities in the market. Technical analysis is one of these required market research.

Technical Analysis

Technical Analysis refers to the use of graphical tools like charts, patterns, indicators, algorithms, and price action to study historical price data in an attempt to predict price movements. this is done to effectively trade the financial market. Thus helping investors and traders understand the various elements of the market that affect the pricing of assets traded.

Ideally, technical analysis focus on the relationship between previous price data and the current price, highlighting the reaction between buyers and sellers at a given price point. This helps investors and traders identify the previous reaction of market participants (buyers and sellers) at the given price relative to the current price, and so, helps improve their trading decisions.

Technical analysis is used for both short-term and medium-term trading following the repeating nature of market sentiment in patterns of price movement, this helps traders and investors to capitalize on potential opportunities. Thus, providing traders with a set of tools that can improve trading decisions and enormous trading opportunities to make a profit regardless of the market condition encountered.

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Importance of Technical Analysis

There is some notable importance of technical analysis, some of which includes:

1. The adoption of technical analysis helps traders and investors identify the fair-priced assets that can yield high profits in the markets. This helps traders avoid fakeout traps and unnecessary price pump moves.

2. Technical analysis utilizes graphic tools like charts, lines, indicators, and algorithms in predicting possible price movement. This helps traders identify the overall market sentiment.

3. Technical analysis is considered ideal for short to medium-term trading while considering the unpredictable nature of the markets. Thus, allowing traders to reevaluate price movements at any given time.

4. Technical analysis focuses on price data history to build the basis of its prediction, looking at previous trends, demand, supply zones, etc.

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Question

Do you have practical knowledge of how to conduct technical analysis? Highlight some of the components of Technical analysis.

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Yeah, I have practical knowledge of technical analysis. I adopt the market research tactics on a day-to-day basis when analyzing the markets. This ranges from the use of technical indicators, chart patterns, candlestick patterns, etc. Ideally, adopting technical analysis helps me identify the trend and the overall sentiment of the market participants.

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Components of Technical Analysis

Technical analysis is comprised of various components that can be either used alone or fused to build strong market sentiment. Some of these components are:

1. Chart Patterns

Chart patterns are a component of technical analysis that focuses on repeating structural patterns in price movement. These patterns refer to a collection of candlesticks formation that conveys information about possible potential movement of price. Chart pattern has been studied over time and has proved to have a specific outcome. This helps traders predict a possible outcome from a specific chart pattern. Some of these patterns include Double tops and Bottoms, Triangle patterns, wedge patterns, flags, etc.

2. Technical Indicator

Technical indicators are analytical tools used in technical analysis, they are created from the weighted mathematical calculation of previous market data (for instance, opening prices, closing prices, average price, etc), which is used in the prediction of important price points in the overall movement of price, in line with principles of demand and supply of the traded asset.

3. Candlestick Patterns

Candlestick patterns refer to the combination of two or more candlesticks formation that results in a specific outcome. Over the years, traders have identified a sequence of patterns in candlestick formation that hints at various possible price movements. This provides entry opportunities for investors and traders to capitalize on these movements. Some of these include engulfing candles, doji, etc.

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Question

What do you understand by technical indicators? Do you consider them effective for trading cryptocurrency? Which one is your favorite and how does it work? (Screenshots required where necessary)

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Technical Indicators

Technical indicators are analytical tools used in technical analysis, they are created from the weighted mathematical calculation of previous market data (for instance, opening prices, closing prices, average price, etc), which is used in the prediction of important price points in the overall movement of price, in line with principles of demand and supply of the traded asset.

The purpose of technical indicators is to hint at the future possible probability of price reaction around corresponding price point areas. These probabilities are considered by investors as trade signals, that they can either choose to capitalize on or ignore based on other related information.

The generated probability can either be false or correct as indicators only project possible outcomes and thus can only predict a certain percentage. Technical indicators are combined with other technical analysis tools like price action, etc to optimize a trade setup and improve the trading experience. There are different types of technical indicators, as some indicators are created using different mathematical approaches, and they serve different purposes on a price chart. For instance, some indicators only predict the volatility of a market, while others predict price trends, etc.

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Do I Consider Them Effective?

Yeah, I consider technical indicators to be effective in trading cryptocurrency. But I don't recommend using only the indicator generated signal, this is because there are different types of indicators suited for different types of market conditions. Ideally, some of the signals of the indicator may be false or distorted. Hence it's advised to always have multiple layers of confirmation before executing a trade idea.

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Favorite Technical Indicator

My favorite technical indicator is the Moving average indicator, which can be either EMA or SMA. I use the crossing strategy when using the moving average indicator.

How does it works?

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for this illustration, I chose the EMA

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The exponential moving average indicator strategy is similar to the simple moving averages where the cross of the shorter period line above the longer period line is seen as a bullish signal, which implies that buyers are in control of price movement, while the cross of the longer period line above the shorter period line is seen as a bearish signal, which indicates that sellers are in control of price movement. The period used is 8 and 21 respectively. To illustrate this, observe the chart below:

Bullish Crossover

_{Screenshot was taken from Tradingview.com}
The bullish crossover occurs when the shorter period EMA crosses above the longer period EMA. In this instance, the 8-period crossed above the 21-period EMA, indicating that buyers are in control of price movement. This signaled that buying the ETHUSDT pair would be more logical as buyers continue to push the price upwards.

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Bearish Crossover

_{Screenshot was taken from Tradingview.com}
The bearish crossover occurs when the longer period EMA crosses above the shorter period EMA. In this instance, the 21-period crossed above the 8-period EMA, indicating that sellers are in control of price movement. This signaled that selling the ETHUSDT pair would be more logical as sellers continue to push the price down.

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Question

Highlight the advantages and disadvantages of technical analysis. What's your advice to anyone about it?

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Advantages of Technical Analysis

Some advantages of technical analysis include:

1. Technical analysis focuses on raw price data, as market participants tend to react differently at a certain price point. This leaves observation trails that traders use to investigate the movement of price.

2. Technical analysis is relatively easy to understand and use, as there is a predefined outcome from previous price observation. This ensures that the trader has a clear understanding of the possible outcome.

3. Technical analysis forms the bases of technical indicators, algorithms, bots, etc. As their calculation is derived from previous price data in relation to the current price.

4. Technical analysis can be done on any market or asset class such as crypto, forex, indices, stock, etc. This is because its parameters rely on price movement.

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Disadvantages Of Technical Analysis

Some disadvantages of technical analysis include:

1. Technical analysis does not often consider fundamental analysis as it solely focuses is on price movement in relation to previous price data. This could be disastrous for traders as fundamental data tends to push prices hard.

2. Regardless of the predefined outcome of technical analysis, some technical analysis result tends to differ as other factors contribute to the movement of price.

3. Using lagging technical indicators in technical analysis can sometimes result in late trade decisions. This is because the intended price movement would have started long before the indicator can spot the opportunity.

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My Advice

I would say conducting technical analysis is very important as it gives a great deal of information about price and its possible movements. I would advise anyone interested in technical analysis to always combine multiple confluence that all hint at the same result, like combining technical indicators and chart patterns. Also, conduct a multiple timeframe analysis to get a larger perspective on what the market is doing on a higher spectacle. This reveals when to expect a high level of volatility, which if wrong, will result in bad trading decisions which will always result in losses and the possible loss of the invested capital. It's best to learn before engaging with some markets.

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Conclusion

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Though some level of experience is required to be able to capitalize on the opportunities of various crypto markets, Technical analysis provides these insights that aid in trading decisions. Technical indicators are an important element of technical analysis. It provides vital information about price movement, which is calculated from previous market data. Through its calculation, trade signals are generated, which the investor can choose to ignore or capitalize on, depending on other contributing factors. Technical indicators work best when it is combined with other indicators and technical analysis tools, this brings about a refined, quality trade setup and improved trading experience.

This draws the curtain on Crypto markets Technical analysis.

Steem on!
Thank you for reading!