Crypto trading might seem like fun and games to you at first but it's serious business. Some people even do this for a career. Does that seem crazy to you? Well, it shouldn't because it's possible as long as you have the right knowledge and tools. Speaking of tools, let's check out some of the best ones you need for cryptocurrency analysis. By the end of this read, you'll be on your way to expert status.
Everyone's seen a trend line before but do you actually know how to read them? If you're serious about crypto trading, you better start now. Simply put, trend lines show the usual direction that a coin moves towards. It's like reading a roadmap for the future of your cryptocurrency. The only problem is, cryptocurrency assets tend to be incredibly volatile. Just check out the trend line of Bitcoin from this past year. It looks like the Himalayan mountain range.
But don't let those up and downs fool you. Experts who understand trend lines see past that volatility and in fact, find an overall upward trajectory (or on the other hand, an overall downward slope.) There are even some trends that just move sideways. All in all, it's important to analyze the big picture of a trend line. Furthermore, one must realize not all trend lines are alike. There are many forms like intermediate, short-term and long-term. So just start getting comfortable with these as they're an incredibly helpful tool if used correctly.
No one can predict the future of the cryptocurrency market. However, analyzing trading volume is perhaps the closest you can get. There is nothing complex about this. Significant trends are always paired with high trading volumes. Alternatively, declining trends are always paired with low trading volume. Hence, the volume is key.
For example, let's say the hot, new crypto "GroinCoin" is the midst of a weak trend. Some people start to panic but not you. You're smart. You know to check the trading volume first. If the trading volume decreases along with the decline, then that's bad news. However, it's also possible for the trading volume to keep increasing during a downward trend. That's how you know all is well and to just wait out this period of negativity.
On the other hand, "GroinCoin" might show an upward trend but simultaneously show a decreasing trade volume. At that point, you know the upward trend is coming to an end soon.
As you can see thus far, trend recognition is a bit complicated at times. However, there is something that simplifies the entire process and that's a moving average. A moving average is based on the average price of a coin over a given period of time. So once, again, let's look at the price of GroinCoin. To find the moving average of GroinCoin on December 30th, one must calculate the price of GroinCoin for each of the 29 days before it. After that, you connect all the dots to form a line. That's your moving average.
Those are just a few key tips to help you before investing in promising, new projects that you like. However, it's important to remember that it's not all about technical analysis when crypto trading. Sure, it helps but it's also good to mix technical skills with fundamental skills. Keep an eye out for future articles on that, coming soon.