Trading Cryptocurrencies Like a Boss Takes Time and Research
This article was originally posted on MyCryptopedia - a trusted educational website created by two UK university students, and founded on their passion for cryptocurrency and blockchain technology. Cryptocurrencies are like other asset classes in that they trade based on supply and demand. One of the best ways to learn how to trade a cryptocurrency is to use technical analysis.
Technical analysis is the study of price action. Each of these processes can help you make a trading decision and develop trading strategies. Getting in and out of trades is one of the strategies you can use to better understand optimal times to enter and exit a trade. Support is a level where prices find themselves having a difficult time moving below. There is solid demand at support levels, as buyers step in to buoy prices.
Resistance on the other hand, is a level where supply outweighs demand. Here, levels have a difficult time moving higher. In the Bitcoin price chart below, the day moving average becomes the support, which used to be the resistance.
The day moving average is the average of the last days. The eleventh day is the first day in which the calculation is dropped. Another way to find support and resistance is by using Fibonacci retracement levels.
Here you can measure the change in the move from a recent high to the recent low and find target levels where Bitcoin will naturally move to. Momentum describes the acceleration or deceleration in the price of a crypto currency. One of the more popular momentum indicators is the moving average convergence divergence index MACD. The index measures the changes in moving average and determines if momentum is decelerating or accelerating. Many traders will use a MACD crossover signal to find levels when momentum is accelerating.
Many traders indicate that it could be a good time to purchase bitcoin. This also tells you when negative momentum is accelerating, and is often interpreted as an indication to sell bitcoin. If you believe that the price of bitcoin has become overextended, then you can use the relative strength index RSI to generate a buy or sell signal.
The RSI is a momentum oscillator that measures accelerating and decelerating momentum, as well as generates overbought and oversold signals. When the RSI moves above the overbought trigger level of 70, a sell signal is created. By using a combination of technical analysis tools, you can find levels where you can enter, and exit based on support and resistance. Pinpoint where momentum is accelerating or decelerating.
Also, find levels where prices are overbought or oversold. Finding Support and Resistance Getting in and out of trades is one of the strategies you can use to better understand optimal times to enter and exit a trade.