Technical Analysis with cryptocurrencies

I’m just winging this so I’d rather not be distracted halfway through a thought process

So to start things off, I’ll explain the basics of what TA is and why it is important.

TA stands for Technical Analysis. It is used to analyze the market’s history (and psychology) to predict what the future may hold.
I personally believe that TA is even MORE important in Crypto than in regular Stocks.

The reason for this is because Cryptocurrency is extremely young, compared to stocks / forex.

Since the overall market cap is just a small fraction of the other markets, Cryptocurrency is a lot more susceptible to volatility + market swings .

Anyways, since Crypto consists of such a small market cap and are so volatile, regular ‘mom & pop’ day traders have a lot more impact on the market than in Stocks and FX and A LOT of the traders coming into the crypto space are fairly new traders. They hear of it as the ‘hip’ thing that will make you lots of money (which is true) and start rushing to begin trading. You’ll see plenty of young 19 — early twenties traders playing in the markets. Needless to say, a lot of the traders don’t start with that much experience and when they come into the markets one of the first things they will Google, or are told to learn, is TA.

When you have a bunch of people learning the very basics of TA and their accumulated capital is the thing that moves a market, then expect the market to work EXTREMELY well with basic TA. As opposed to stocks where it is mostly dominated by institutional money and moves a lot slower than crypto due to it’s overall market cap.

I have found that BASIC TA (Triangles, patterns, fib levels) is almost always more powerful than the more advanced stuff like Harmonics (Gartley / Butterfly patterns). I believe this is due to the fact that the large portion of new day-traders learn the basics and it works for them so they just stick to it. TA is supposed to be about understanding the mass’ psychology behind the markets, but with a market that is, for the most part, ‘simple’… then keeping it simple will turn out to be a lot more effective than throwing out advanced TA.

That is why I personally ALWAYS use the basic stuff and try not to stray too far off into the more advanced TA indicators + patterns.

So what are the basics of TA?

Trend Lines (Support, resistance level)
RSI (Relative Strength Index ( I prefer Stoch )
Patterns (Flags, Double bottom/top, Head & shoulders, Wedges / pennants)
If you can learn these basics and apply them correctly, I will tell you right now that you will become a winner in the market.

So I’ll break down these basics further….

Trend lines:

Trend lines are basically just lines that connect the highest-high points (ceiling / resistance) and the lowest-low points (support / floor). Example:

When there is a new high and then a lower high afterwards, this becomes a new trend ceiling. Same goes for supports. Notice that every time it hits the point, it either bounces or shorts down.

Once the 2 points intersect it will then create a breakout point. This is where “Bears & bulls” battle it and ‘bet’ on whether the market will go bullish (up) or bearish (down).

There are many indicators that help with figuring out whether you should be a bull or bear:

Look at how strong the support / ceiling is. You can figure this out by seeing at how many points the price touches the ceiling or the support. If there are 7 ceiling hits and only 3 supports. Most likely it will break down instead up up.
Use other indicators such as RSI / Ichimoku Clouds. I personally prefer RSI. Ichimoku is also very powerful, but people use mixed settings which could throw off the support from other Ichimoku users. However, it is still very powerful and gives a lot of good signals.
If you’d like to learn about RSI or Ichimoku, I recommend just YouTubing instructional videos. Investopedia.com is really good, but it can complicate things for the more novice user.

On the note of trend lines / supports, a tip that I would like to give is to ZOOM OUT!!!!! You may be approaching a breakout point with, what may seem like, strong support, but this could be a false-indicator because there may be a strong ceiling point from months ago. One of the biggest mistakes I see on the markets is that people only analyze a small section / portion of the market and don’t take a step back to look at the WHOLE picture.

This is how I called the ‘bear’ on Bitcoin back when it was 2500–2600

While everyone was looking at all the bullish indicators from the last month or so, I took the time to look at the 1-Week chart on Bitcoin which clearly showed that the price was far from the organic support. (Screenshot coming up)

If you take a look @ this chart (Yep, thats right.. I went all the way back to $6.50 price) then you can clearly see that the previous run was high from the floor support and was due for a correction.

This exact same trend support was shown on ALL of the exchanges.

Compared to the previous bubble though, this one was NOTHING. A tiny bump on the chart. That is why there were so many people still bullish (including myself) because history tends to repeat itself. However, one needs to take into account the ‘catalyst’ as to why the previous bubble was so dramatic. Basically, BTC hit the mainstream for the FIRST time and institutional money flooded in. Unless there is a similar, epic, catalyst.. don’t expect for history to repeat itself and Bitcoin to rise up to 1 million dollars anytime soon.

So anyways, lesson: Zoom out… ALL THE WAY if you have to.

I’ll try to quicken this up since I’m making probably taking too much time. Anyways, another important thing to learn is patterns.

The basics are Flags, Pennants, H&S + wedges.

Flags are great indicators (Bull flag / Bear flag). They literally look like tiny little flags. Whenever there is a big spike from something like… a triangle breakout, then there will always be a point of consolidation. This big spike is the ‘pole’ the consolidation level is the actual flag. Example:

This is an example of a bullish staircase, something that would be considered a healthy climb. It consists of multiple flags being posted on top of each other which builds the stairway to heaven.

Note: flags can also be a pole with a consolidation tunnel (instead of the triangle shape) however, these usually look like this when you either A) zoom in closer, or B) when it is a bigger flag / higher cap coin.

H&S (This one is an inverse / inverted H&S) are another basic pattern. The larger the H&S, the more likely it is to be a correct pattern. If you zoom in close, you’ll notice that a lot of the H&S tend to not stick. A H&S pattern is an indicator / signal that the market is changing trends. A regular H&S is bearish. The head would be the highest point and the right shoulder would indicate the turn to a bearish downtrend. An inverted H&S is the exact opposite, as seen recently with Bitcoin.

(Also notice the flag on the top)

Wedges are other reversal signs. They can be used within micro movements or longer term. I personally enjoy tracking them within tunnels for small day-trading short-sell movements.

Example: This is a micro wedge. You can see the market moving up and creating a wedge. If I were day-trading this, I would sell near the top of the wedge and buy in a little bit lower.

People commonly mistake wedges as a powerful trend reversal pattern. This is false, most of the time the drop would be fairly small. However, if you win a lot of these small bets, your compound gains will amount to A LOT. I tend to do this during bull-runs up so that I can accumulate more and more coins before I dump.

A falling wedge is just the opposite of a rising wedge. It is a great way to buy in low on a position.

All of these patterns will be posted ALL OVER the charts. Pattern traders are very common and I have found it to be extremely successful / useful / powerful.

I am definitely a pattern trader.

hrmmmm… Been writing up a lot. Trying to see what more basics I could throw out that can be used for powerful returns

Some basic Pro-tips:

DO NOT OVER-TRADE!!!! People lose a lot of money by going in and going out and in and out, blah blah blah. This is a MAJOR mistake by a lot of new traders. You need to have patience to play this game. We are in a bubble, so most of the time you’ll just have to wait 1–2 weeks to even see your money come back. If you can’t survive for 1–2 weeks without trading, then you need to stop throwing your entire paycheck / savings into Crypto. That is extremely dangerous.

Keep up to date with news. Catalyst trading is some of the most profitable trades you can do…. but also some of the most dangerous. For example, if you predicated a catalyst happening BEFORE it hit the media, then you will win / save lots of money. I saw BTC locking in BIP191 Segwit when I saw it go up to 77% for the first time. However, once it (basically) confirmed, the media all covered it and we had a crazy rally up to current levels. If you’re ahead of the media, you will win. If you’re late, then take some time to step back and read all the indicators on the markets to see if the FOMO / FUD already took it’s course or of you’re still early to catch on.
NEVER FOMO / FUD. It is always safer / better to bet in a market that you can read, than to just go in blindly and hope that everything will be ok. It is fairly hard to call the top of a catalyst rally, so if you’re late to the party, holding off until the consolidation period is, in my opinion, a very smart thing to do. Same with dumping. If you see that the market is dumping because of some FUD catalyst, hold back and wait for the bounce-back. The last thing you want to do is dump @ the bottom or buy @ the top. People always think that the best chance of getting the most profits is hitting the ‘tippity-top’ or the ‘very-bottom’. WRONG! It is a lot more profitable to slowly build compound gains that will make you more gains in the future, instead of trying to hit all of these tops & bottoms. Those are risky trades and suicidal hunts for ‘fools gold’.
And make no mistake, there is ALWAYS a consolidation period and ALWAYS a bounce-back. Wait until one of those phases to buy/sell. The price will never go 0 to 100 in the matter of minutes. The markets move a lot slower than that.
Never margin. Period.
Oh, Also! Learn how to read candles