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5 Technical Tools for Cryptocurrency Price Swings

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5 Technical Tools for Cryptocurrency Price Swings 5 Technical Tools for Cryptocurrency Price Swings Here are the tools: 1. Elliott Wave Analysis Elliott Wave is a special type of technical analysis that traders use to analyze and forecast market cycles and trends by identifying extreme price highs/lows, investor psychology and other such factors. The Elliott Wave Principle works on the premises that markets are influenced by collective investor psychology aka crowd psychology, which makes it move in natural sequences of optimism and pessimism. Elliott Wave lends itself well to cryptocurrency trading because there are no true fundamentals that are currently driving the crypto markets; rather investor sentiment is the main driver of prices. 2. Fibonacci Levels Fibonacci Levels is a popular tool that is based on the Fibonacci Sequence. It’s used to predict support/resistance levels for different types of assets. The most commonly used Fibonnacci levels are 38.2% and 61.8%, often rounded off to 38% and 62%. Fibonacci levels alert the trader to a possible trend reversal, support or resistance level. A bounce in a trend is usually expected to retrace at least part of the previous trend. Traders can use Fibonacci Retracement levels to identify possible bullish reversals during downtrends or possible bearish reversals during uptrends. 3. MACD or Moving Average Convergence/Divergence MACD or Moving Average Convergence/Divergence is a highly popular indicator with day traders. MACD is used to compare price movements between a short-term moving average and a long-term moving average. The 12-day exponential moving average (EMA) and the 26-Day EMA are typically used. MACD can be used as a trend-following indicator and also as a momentum indicator. MACD is effective for daily, weekly, or monthly charts. MACD divergences should, however, be used with caution because bearish divergences are possible during strong uptrends while bullish divergences can also happen in a strong downtrend. 4. Stochastics and Relative Strength Index (RSI) Stochastics and Relative Strength Index (RSI) belong to a group of technical analysis tools known as oscillators because they move between 0-100. They are both used to determine the strength of a trend as well as predict tops and bottoms based on overbought or oversold conditions. An RSI reading of 70 and above signals an overbought condition while 30 and below signals an oversold condition. RSI is effective at identifying overbought and oversold conditions in a ranging markets, but can give false signals in strongly trending markets (either bullish or bearish). A trader can use RSI to enter or exit various positions. A prolonged move will take the RSI reading close to 100, indicating an overbought condition and an approaching correction. A long downward move will take the RSI close to zero indicating an oversold condition and an approaching correction. 5. Ichimoku Clouds Ichhimoku clouds are used to define support and resistance areas, identify trends and their momentums and also provide trading signals. The clouds are formed by plotting moving averages six months ahead and 52-week highs and lows plotted six months ahead as well. The cloud spans between the forward moving average and the mid-point of the forward 52-week high and low. Useful Trading Setups 1. Round numbers:​ Round numbers have been having an important psychological effect in the bitcoin market. This could be due the fact that the media tends to hype up things whenever bitcoin prices approach a huge round number such as 10k, 20k, and so on. 2. Breakouts:​ Horizontal breakouts seemed to work very well in the bitcoin market before it topped out at around $20k. Since then, they have not been very reliable. They, however, could still work for other coins that are still in bullish mode. .
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