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3 technical analysis strategies

The perception of cryptocurrency trading as merely a game of chance has shifted to one of strategic planning. To find trades with a high probability of profit, successful traders use a combination of technical analysis, specific indicators, and metrics.

Let’s first define the key terms before discussing the three strategies for technical analysis that can assist in confirming a profitable trade:

  • Technical analysis is all about analyzing statistical trends, so it can be used with any asset that has historical data. The objective of technical analysis is to comprehend how the supply and demand of a particular asset might influence its future price changes by examining its past trading activity and price variations. Profitable trading opportunities have frequently been identified by analyzing price trends and patterns with the help of charts. 
  • indicator is a device that aids traders in making market-related decisions. Different aspects of market activity can be measured using specific indicators on cryptocurrency market charts. In the end, traders use them to try to predict possible price movements in the future.

6 Common Mistakes in Technical Analysis

The three indicators for crypto trading examined here are:

  1. Relative strength index
  2. Bollinger Bands
  3. Moving average convergence/divergence

The most important difference lies in how these indicators were applied in the market. Some best practices for using them are listed below.

 

  • Relative strength index

The relative strength index (RSI) determines whether an asset is overbought or underbought by measuring momentum. By contrasting the asset’s closing price with its 50-day moving average, it accomplishes this.

The RSI reading is considered to be above 70, which qualifies as overbought, if the asset’s current price is within 10% of its 50-day moving average and has been trending upward for at least two days; However, an RSI reading below 30 is considered oversold.

A trending upward RSI tends to signal a forthcoming rally.

Particularly look for this kind of RSI divergence: two lows, with the first low being higher than the second, and an RSI that shows a lower low being followed by a higher low. A divergence of this kind suggests a possible shift in momentum, suggesting that a significant upside may soon occur.

  • Bollinger Bands

Using a common statistic called standard deviation, Bollinger Bands can be used to determine an asset’s relative high and low price over a specific time period.

When an asset’s price moves outside of the upper or lower bands, look for breakout price action using Bollinger Bands. Another good sign that a trade went well can be found in prices that are close to the extremes of these bands.

Different Types of Trading

  • Moving average convergence/divergence

Momentum indicators that follow trends include the moving average convergence/divergence (MACD) indicator. The difference between the 12-day EMA and the 26-day EMA is depicted by the MACD line as a relationship between the two exponential moving averages (EMAs).

The signal line, which is a MACD line’s 9-day EMA, is the final and most significant feature. With the MACD, traders check to see if and when the signal line and MACD line cross over.

A bullish indicator that tells traders to consider buying the asset when the MACD line crosses above the signal line is a sign that a possible green candle is coming.

On the other hand, a bearish indicator that tells traders to consider selling or shorting the asset occurs when the MACD line crosses below the signal line. In the past, this has resulted in a decrease in asset value.

 

3 technical analysis strategies 

 

  • Using MACD as confirmation of a VORTECS Score trigger.

The trigger was preceded by a bullish MACD fast line crossing over the signal line, as shown by the price action on the chart. Pro traders could have capitalized on the beginning of Ether’s 2021 bull run by using the VORTECS Score trigger as a confirmation method.

 

  • Using RSI as confirmation of a VORTECS Score trigger.

When looking at the price action, you can see that DOTUSD just gave out a bullish RSI divergence signal:

     The RSI had lower lows, whereas the DOTUSD had higher lows.

 

  • Using Bollinger Bands as confirmation of a VORTECS Score trigger on DOTUSD.

On the other hand, traders who employed the Bollinger Bands indicator might have utilized it as confirmation for the VORTECS Score trigger on September 21, 2021.

On the same day that the VORTECSTM Score was triggered, the price chart for DOT shows that it fell below the lower boundary of the Bollinger Bands. This provided immediate bullish confirmation for the trade.

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