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To the uninitiated, the "market" may seem like a complex system that only an expert can understand, but it's actually what people buy and sell. Cryptocurrency trading may seem like an esoteric concept at first. However, once you begin to understand it, the concept becomes much simpler.
The sum of active buy and sell orders is a snapshot of the market at any given time. Reading the market is an ongoing process of recognizing long-term patterns or trends that traders can target. Typically, markets have two types of trends: upward and downward.
A bull market, or bull market, occurs when price trends are upward. These upward price trends are also known as "pumps" because an influx of buyers pushes prices upward. A bear market, or bear market, occurs when price trends continue to fall. These bearish price movements are also known as "resets" as a large amount of selling pushes prices down.
Bullish and bearish trends can also exist within other larger opposing trends, depending on the time frame you are looking at. For example, a small downtrend can occur within a larger, longer-term uptrend. Typically, in an uptrend, prices make higher highs and higher lows. In a downtrend, both highs and lows are lower.
Another market condition known as "consolidation" is when prices move sideways or within a certain range. Consolidation phases are usually easier to recognize on higher time frames (daily or weekly charts), they occur when an asset calms down after a sharp uptrend or downtrend. Consolidation can also occur before a trend reversal or during periods of low demand and low trading volume. In such market conditions, prices essentially move in a range.
Technical analysis (TA) is a method of analyzing past market data (especially price and volume) to predict price movements. While there are many technical analysis indicators of varying degrees of sophistication that traders can use to analyze the market, here are some of the basic tools at both the macro and micro level.
Just as traders can identify patterns over hours, days and months, they can also identify patterns in price movements over many years. There is an underlying market structure that makes the market vulnerable to certain behaviors.
The cycle can be divided into four main parts: Accumulation, Bullish, Distribution and Bearish. As the market fluctuates between these phases, traders are constantly adjusting their positions by consolidating, retreating or adjusting them according to their judgment.
Bulls and bears are two very different creatures that generally behave very differently. It is important for traders to know not only which role they belong to, but also which role is dominating the market at the moment. Technical analysis is necessary not only to position oneself in an ever-changing market, but also to effectively navigate its ups and downs.
Price movements are largely determined by "whales" - individuals or groups with a large number of trading instruments. Some "whales" act as "market makers," placing buy and sell orders on both sides of the market, creating liquidity for assets and making profits in the process. "Whales" exist in virtually all markets, from stocks and commodities to cryptocurrencies.
A cryptocurrency trading strategy must understand the whales' preferred trading tools, such as their favorite technical analysis indicators. In short, whales tend to know what they are doing. By anticipating the intentions of the "whales", traders can work with these experts and profit from their strategies.
While bull/bear market charts are useful, psychological cycle charts provide a more detailed spectrum of market sentiment. While one of the first principles of trading is to set aside emotions, the power of group mentality tends to prevail. The rise from hope to exuberance is driven by FOMO (Fear of Missing Out on Gains), which refers to those who have not yet taken a position in the market.
Being in the valley between exaggeration and complacency is important in order to be able to exit the market before the bears take over and people start selling in panic. It is important to consider high-intensity price behavior, which can indicate overall market momentum. The idea of "buy low" is very simple, as the downturn following a sharp drop in prices is the best time in the market cycle to accumulate. The greater the risk, the greater the reward.
The challenge for serious traders is not to let emotions dictate their trading strategy in the face of a plethora of hot news and analysis published in the media, chat rooms or by so-called thought leaders. These markets are susceptible to manipulation by whales and those who can influence the pulse of the market. Do your homework and be decisive in trading cryptocurrencies.
It's important to be able to recognize patterns and cycles in the market to gain clarity from a macroeconomic perspective. Understanding where you are in relation to the whole is crucial. You want to be a seasoned surfer who knows when the perfect wave is coming, not floundering in the water hoping something big will happen.
However, a micro-perspective is also important in determining your actual strategy. While there are countless technical analysis indicators, we will only look at the simplest of them. Probably the two most commonly used technical analysis indicators, "support levels" and "resistance levels" refer to price barriers that typically form in the market and prevent price from moving too far in a certain direction.
Support levels are price levels where a downtrend tends to pause due to an influx of demand. When prices fall, traders tend to buy at lower prices, thus forming a support line. Conversely, resistance levels are price levels where the uptrend pauses due to selling.
Many cryptocurrency traders use support and resistance levels to bet on the direction of price movement, with traders making immediate adjustments when prices break above and below the levels. Once the trader has identified the floor and ceiling, an area of activity is created where the trader can enter or exit the trade. Buying at the lows and selling at the highs is a common standard operating procedure.
If price breaks through these two barriers in either direction, it is an indication of the overall market sentiment. This is an ongoing process because when the trend is broken, new support and resistance levels are usually formed.
Although the static support and resistance levels shown above are common tools used by traders, over time price tends to move up or down and support and resistance levels change accordingly. A sequence of support and resistance levels can indicate a larger trend in the market, represented by a trend line.
When the market is trending upward, resistance levels begin to form, price movement slows and retreats, and price returns to the trend line. Cryptocurrency traders pay close attention to support levels on rising trend lines, as they indicate an area that helps prevent the price from falling significantly. Similarly, in a bear market, traders look for a series of descending peaks.
Trading itself is a risky endeavor. It is almost impossible to accurately predict future market activity. Ultimately, it is important to make your own decisions using available information and your own judgment, and to be sure you have enough information.
In addition, trading strategies can vary greatly from person to person, depending on one's preferences, personality, trading capital, risk tolerance, etc. Trading involves a lot of responsibility. Anyone wishing to get into trading should evaluate their personal circumstances before deciding to trade.
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