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Introduction

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The crypto currency market is a relatively young market in the financial sector. It boasts of a total market capitalization of just over $1T as at the time of writing.

In this market there are so many crypto currencies like Bitcoin, Litecoin, Solana, Polkadot, Chainlink, etc. Also, at the time of writing, there are just over 20,000 crypto currencies according to CoinMarketCap.

The market is highly volatile thereby making it very difficult for anyone to operate on it, especially newbies. To operate on the market successfully, you need to have well grounded knowledge of the methods you are going to use.

We are going to look at one of the methods briefly, which will give us some ideas into operations in the crypto currency market.

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

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Technical analysis is the use of charting tools to study price movements of a crypto asset and analyze them which helps market participants (usually traders) to make decisions in the crypto currency market that helps them to make profits.

The analysis is usually done on a trading chart that is provided by a trading platform (broker). The chart showcases the activities of the market through the price, hence it being called Price Action.

Market participants who are operating in the crypto market make use of charts because it give them a clear insight to the behavior of a crypto asset's price. It shows the historical price movement of the price of the asset and how it can have an effect on the future price movement of the asset.

Some of the things that can be spotted when using a chart when performing technical analysis is trends and patterns. Traders can spot trend whether it is an uptrend or a downtrend. They can also spot patterns which the price has exhibited historically.

These helps them make decisions about the future movement of the price and their respective entry and exit.

Importance of Technical Analysis

The use of technical analysis is very important because it is a common crypto currency market analysis method which has been employed by traders over the years and has helped them make profitable decisions.

Some of the importance of Technical Analysis includes:

1. It put traders at an alert. As the crypto asset does it's price action, it shows the trader what's happening, and what can happen in the future.

The price may have reached a high price, then after doing a TA, you realize it will go down soon, you prepare yourself to become alert for such event to take place.

2. It helps confirm your initial biases about an asset. You can be seeing the price of a crypto asset online and feel the price should go down, but you are not sure.

Performing TA helps to overcome this uncertainty and give you a better perspective of your initial understanding of the price movement.

3. It helps to make sound predictions towards the future movement of an asset. By employing the use of TA, you can see first hand the movement of the price and make well informed decisions as to how the price can behave in the future.

4. Allows traders to rely on trading tools that helps trader perform better. By employing technical analysis, traders are made to use trading tools such as trading charts, technical indicators etc that helps them get better perspective of the price of an asset.

Through this way you can get better trading results.

5. Improves traders efficiency. Using TA helps traders improve their trading experience. It guides you on when to buy the asset and when to sell it, thereby improving the management of your trade.

It also helps to improve the money management of a trader. Because by following the dictates of technical analysis, you tend to know how to manage your capital so it doesn't get burned.

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

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Yes I have a practical knowledge of how to conduct technical analysis.

As a trader who uses technical analysis as the method for engaging the crypto currency market, the things to consider is having a trading plan along with a strategy you wish to employ.

The trading plan goes hand in hand and has a way of affecting your operations on the crypto currency market.

Because the crypto currency market is highly volatile, it is sensible that your trading strategy should be one that suits the volatile nature. For instance, it is better to use a swing trading strategy rather than a range trading strategy.

During the time of operations it is best to use charts that are rid of too many technical indicators. The indicators that are to be used are those that are part of your strategy. It is adviceable to use at most three technical indicators per time. One to give the signals and the other two to serve as confirmation of the signals.

After doing all these, you can jot down your thoughts on your discoveries based on your strategies then you can go ahead and make decisions with regards to your trading plan.

Components of Technical Analysis

In order to perform technical analysis optimally, traders need to know the components of technical analysis. The core components of technical analysis are listed below.

1. A trading chart: it is the user interface from a trading platform that displays the price of an asset. It is made up of the price in the vertical axis and the time in the horizontal axis. It shows how price has behaved over time.

2. Price of an asset: The price for an asset is very important because without it, there would be not technical analysis and trading. It is the price that let's traders know what is happening in the market, it show the sentiments of the market.

The price is usually found in the trading charts.

3. Trading indicators: Technical analysis also involves the use of technical indicators. These indicators are used to help traders develop certain perspective of the market's price and how to take advantage of it.

There are different types of technical indicators and they are mostly used based on the style of the trader. For instance, a range trader can decide to use Bollinger Bands as their trading indicator because it captures the price of an asset when it moves in a range.

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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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A technical indicator is a tool that is found in the trading chart that can be used for technical analysis. With it traders can get better perspective of the price action and this allows them to make better decisions.

Traders can make analysis of the market based on some aspects like trends, volatility, etc by making use of technical indicators.

There are a lot of trading indicators and they are widely grouped into four categories namely:

• Trend indicators. Examples moving averages, ichimoku kinko iyo.
• Oscillating indicators. Examples relative strenght index (rsi), stochastic
• Volatility indicators. Examples Bollinger bands, average true range.
• Support and resistance indicators. Examples pivot points, donchian channels.

Technical indicators can be effective if used properly. Since the use of indicators gives probabilities and likelihoods not guarantees. However, an indicator that produces results more of the time rather than less should be regarded as 'effective.'

It depends on you as a trader and how you can be able to adapt the use of the indicator into your own style of trading overtime. So if you are a trend trader, it's best to use trend trading indicators to suit your trading persona then try to adapt such indicators into your trading strategies and plan.

My favorite indicator is the moving averages.

A moving average is a technical indicator that shows the trend of an asset using a line that is plotted on the chart. It makes use of a calculation that has a default settings which is responsible for plotting the line on the chart.

The settings can be tweaked depending on the style of a trader and the strategies a trader uses as well as what the trader hopes to achieve.

There are different types of moving averages but the common used ones are simple and exponential moving averages.

When using the moving averages there are different ways to analyze price movement. One of them is by using a single moving average. When the price through the candlestick is above the moving average, it can signal an upward movement in price, likewise when the price is below the moving average it can signal a downward movement of the price.

Another way is to use two moving averages. In this case a moving average of higher and lower periods are used. When the moving average of the lower period crosses over the moving average of higher period upwards, it can signal I upward movement in price, there reverse is what happens when the moving average of lower period crosses over the moving average of higher period downwards.

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In the image above we can see how you use moving averages. Here there are three moving averages of periods 200, 60, and 25. The moving average with period 200 (orange line) acts as main zone whereby it is if the market is dominantly in the uptrend or downtrend. While the 60 (light blue) and 25 (dark blue) moving averages shows the cross over which gives the direction of the market.

We can see that the market was in a downtrend as the 60 and 25 moving averages crossed below the 200 moving average. Also, we could also see the 25 moving average crossing over the 60 moving average to show that the market is in a down trend.

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

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Making use of technical analysis has its advantages and disadvantages. We shall be looking into some of them.

Advantages

• Technical analysis is a method that is suitable for anyone to participate in the crypto currency market. The information derived from it is easier to process and act on.

• It shows the psychology and emotion of the market. By just looking at the chart, a lot of information can be gathered.

• You don't need to pay for any technical tools as they are free and available to use on any chart being used.

Disadvantages

• A lot of indicators are out there that can be easily used. This can make one try to use more than the necessary. It can lead to a situation known as “paralysis by analysis.”

• It is a hobby that is very subjective. That said, a certain chart pattern can be show to two people and they come up with different evaluations.

My advice to anyone about technical analysis is that it is the best option for them to use and start their journey into the crypto currency trading world.

It is quite easier to practice as everything you would ever need is on the trading chart. It is also cheaper as all the trading tools involved are free. Again, they are all found in the charts.

To use technical analysis effectively, you need to learn how to use technical analysis in a way that suits your trading style, only then can you attain good success.

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Conclusion

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Technical analysis is a pleasant way to operate in the crypto currency market. It involves the use of charts along with other technical indicator to process the activities of price action.

It is very important because it is one of the major ways to gain insight into the markets and how to go about your operations. There are so many conclusions that can be drawn out which can be useful in your trading decisions.