What Is the Science Behind Crypto Technical Analysis?

 

Crypto technical analysis is one of the foundations of the market. It involves the science of analyzing charts or historical price movements, allowing an analyst to detect patterns. Professional analysts traditionally performed technical analysis, but artificial intelligence is slowly taking over, prized for its speed and accuracy.


 

The science behind crypto technical analysis


Technical analysis in crypto has two core elements: the Dow Theory, which explains market trends, and charts, which are indispensable tools that provide a visual representation of price action. 


 

The Dow Theory can be summarized in six principles: 


 

  • All the information relating to an asset is already incorporated into its price. This includes valuable data, such as the asset’s profit potential and competitive edge. 
  • Three primary market trends exist, including the bull and bear markets.
  • The primary trends undergo three major phases. For instance, the bull market includes the accumulation, public participation, and excess stages.
  • Signals from one market index must correspond to signals from another before a new market trend can be confirmed.
  • Market trends must correlate with corresponding volumes. For example, the market volume should decrease over time in a bear market.
  • Market trends persist until an apparent reversal occurs, regardless of fluctuations in the daily price movements. 

 

Crypto charts can help you analyze data and apply the principles of the Dow Theory. Several charts are used in trading, including the line chart, bar chart, and candlestick chart. But generally, these charts are meant to show the following information: 

 

  • Prices of a cryptocurrency that can indicate its performance.
  • The market cap of a cryptocurrency or the price of each token against the number of circulating coins.
  • Trading volume or the number of times a coin changes hands in a certain period.
  • Hash rate or the speed of mining a cryptocurrency.
  • Circulation supply or the number of coins that are actively traded.

 

Would you like to learn more about crypto technical analysis? Consider implementing AI into your strategy to help you make accurate predictions and identify the best entry and exit points!

 

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