Reading markets is not an exact science, but that hasn’t stopped crypto traders from turning to technical analysis in search of the next hidden indicator that will bring them success. Although technical analysis has been around for centuries, its modern form can be traced back to the early 20th century when Charles H. Dow, founder of the Dow Jones Industrial Average and co-founder of The Wall Street Journal, popularized it.
However, due to the volatile and always-changing nature of the crypto market, analysts have had to adapt traditional technical analysis methods to suit this new environment. As a result, a mix of classic and newer technical analysis terms have emerged to help chart watchers make sense of the crypto market.
Here are some of the most commonly used technical analysis terms in the crypto world:
Bearish
A bearish outlook reflects pessimism towards a market, stock, or asset, predicting a decrease in value. This can lead to selling off assets, short-selling stocks, or using strategies that benefit from a downward market trend.
Bitcoin NVT Ratio
The Bitcoin Network Value to Transactions Ratio is a tool used to determine if Bitcoin is overvalued or undervalued based on its transaction volume. Similar to the PE ratio used in stock market analysis, the NVT Ratio is calculated by dividing Bitcoin’s market capitalization by the daily dollar volume transmitted through the blockchain.
Bollinger Bands
Developed by John Bollinger, these lines are plotted two standard deviations away from a simple moving average (SMA) of a security’s price. They are used to identify potential support and resistance levels.
Breakout
A breakout occurs when the price of a security moves through a level of resistance or support, often accompanied by increased volatility and trading volume. This can indicate a potential change in the prevailing trend.
Bullish
A bullish outlook reflects optimism towards a market, stock, or asset, predicting an increase in value. This can lead to buying assets, holding onto them, or using strategies that benefit from an upward market trend.
Candlestick Chart
This type of financial chart displays the high, low, opening, and closing prices for a specific period. Green bars indicate days where the closing price was higher than the opening price, while red bars represent days where the closing price was lower than the opening price.
Chart Patterns
Distinctive patterns formed by the movement of security or digital asset prices on a chart, such as the Head and Shoulders or Inverse Head and Shoulders patterns.
Day Trading
The practice of buying and selling a security within a single trading day, often popular in the crypto market due to its volatility.
Doji
A candlestick pattern that indicates indecision among traders, often seen in crypto markets as a potential sign of reversal or continuation.
Elliot Wave Theory
A method of technical analysis that looks for long-term price patterns associated with changes in investor sentiment and psychology. Developed in the 1930s by Ralph Nelson Elliot, it is often applied to crypto markets for predicting price movements.
Exponential Moving Average (EMA)
Similar to a simple moving average, but giving more weight to recent prices, making it more responsive to new information.
Fear and Greed Index
A tool used to gauge the sentiments of investors in the financial markets, consolidating emotions and sentiments into a single number on a scale. A low score indicates fear, while a high score indicates greed.
Fibonacci Retracement
A tool used to identify potential support and resistance levels based on a series of numbers derived from the Fibonacci sequence. Often used in crypto trading for pinpointing reversal levels.
Gap
A break between prices on a chart that occurs when the price of a stock makes a sharp move up or down with no trading occurring in between. This can happen during significant news or events.
Head and Shoulders
A chart pattern that predicts a bullish-to-bearish trend reversal and is one of the most reliable trend reversal patterns.
Inverse Head and Shoulders
The opposite of the Head and Shoulders pattern, it signals a reversal of a downtrend.
MACD (Moving Average Convergence Divergence)
A trend-following momentum indicator that shows the relationship between two moving averages of a security’s price.
Market Cap
The total market value of a cryptocurrency’s circulating supply, calculated by multiplying the current price by the circulating supply. A key metric in crypto for assessing a coin’s size and importance.
Moving Average (MA)
A technical indicator that shows the average price of a security over a specified time period, smoothing out price data to identify the direction of the trend.
Oscillator
Any technical analysis indicator that varies over time within a band, above and below a centerline, or between a set of indicator bands.
Relative Strength Index (RSI)
A momentum oscillator that measures the speed and change of price movements, often used to identify overbought or oversold conditions.
Resistance Level
A price level where a trend may pause or reverse due to a concentration of selling interest.
Satoshi (SAT)
The smallest unit of Bitcoin, equivalent to 100 millionth of a Bitcoin. Used in smaller transactions and valuations in the crypto market.
Stochastic Oscillator
A momentum indicator that compares a security’s closing price to a range of its prices over a certain period of time.
Support Level
A price level where a downtrend may pause due to a concentration of demand or buying interest.
Swing Trading
A trading strategy aimed at capturing short- to medium-term gains in a security over a period of a few days to several weeks, often using technical analysis.
Tokenomics
A portmanteau of “token” and “economics,” referring to the economic principles and characteristics that govern the issuance, distribution, and management of a cryptocurrency or digital token within its ecosystem. Understanding tokenomics is crucial for evaluating the potential value and sustainability of a cryptocurrency project.
Trend
The general direction in which the price of an asset is moving, whether upward, downward, or sideways.
Triangles
A chart pattern
