Technical Analysis – Introduction
Technical analysis is a methodology of forecasting the price of any crypto/shares using past data(mainly price and volume. This blog series is specially made based on cryptocurrencies. I’ve tried to make this blog simple for extreme beginners.
Before diving deep into the topic, let’s first understand some most used terms in cryptocurrency market and technical analysis. To make reference with charts, use tradingview, free version is enough.
Bitcoin: 1 bitcoin = 100million satoshi = 1 million bits
Exchanger: Take it as a traditional money exchanger. It’s a marketplace where we buy/sell bitcoin or any other cryptocurrencies.(eg. binance, kucoin)
FOMO: Fear Of Missing Out. Most beginners FOMO’s of profit and buy coins without enough research.
Max/Total Supply: The total or maximum number of coin that will ever exist for certain coin.
Circulating Supply: The total number of coins available or circulating around the market.
Bull: Investor expecting the market to go higher.
Bear: Investor expecting the market to lower.
Bull Market: Market which keeps going higher and making new highs every other day.
Bear Market: Opposite of bull market where market goes down.
CMP: Current Market Price
Market Cap: Market Capitalisation, Market Cap = CMP * Total Circulating Supply of that particular asset
Bubble: Irrationally high prices as compared to real value
FUD: Fear, Uncertainity, Doubt
Day Trading: Getting into and exiting from the market on same day.
Swing Trading: Getting into and exiting from the market in few days or even in weeks.
Positional Trading: Buying monthly lows and holding for few weeks or even months.
Leverage: Extra amount of asset burrowed(usually from broker or exchanger) and bought or sold over your capital limit. eg. If you buy $200 of any asset with a Capital of $100, you have a leverage of 2x. Sites like binance allow leverage as per your choice.
Margin: It’s the amount of funds required to open a leverage trading position. eg. If you want to open a position of $1000 with a leverage of 2X, your margin requirement would be $500.
Long Position: This is the buy position with leverage. Always remember: Both profit and loss in this case is multiplied by the leverage you take.
Short Position: It is the opposite of Long Position. It allows you to make profit in bear market. If you expect the market to fall than enter short position.
Volatility: Percentage movement in price of an asset over a time period.
ROE: Return-on-Equity. It is the actual capital employed in a trade without leverage.
OHLC: Open, high, low and close
Altcoins: All coins except Bitcoin. Even Ethereum is considered as altcoin.
Bull trap: A technique used by market makers to buy a huge amount suddenly, spiking the price.
Bear trap: It is just the opposite of the above for making the prices go higher in the end.
Ask/Bid: Sell orders are asks and Buy orders are Bids.
Spread: The difference between what the sellers are ready to sell at and what the buyers are ready to buy at. Higher the liquidity, the lower the spread.
Support and resistance: A support is a zone/line where we can expect the price to bounce back up. Resistance is a line/zone where we can expect the price to rebound downwards.
Walls: Extremely large orders at a range.
Demand Zone: huge buy order zone.
Supply Zone: huge sell order zone.
Stop-Loss: Order that is triggered when the price goes below this point. Used mostly to cut losses.
Liquidity: The measure of how actively the coin is being traded in the market. A high liquidity coin/exchange has many buyers and sellers at the same time, making it easier to acquire or sell the coin at any time.
Uptrend: It’s when price is making higher highs and higher lows.
Downtrend: Opposite of uptrend, the prices here make lower highs and lower lows.
Consolidation: A period where the price is ranging in a well-defined region. This is a period of indecision and generally leads to a volatile movement in either directions.
Correction: Fall in price after making a new peak.
Sideways market: An indecisive market which isn’t leading to a breakdown or a Breakout, and not giving any signals in either way.
Sell off: Profit taking after a rally in price, which leads to lowering of price of the asset.
Rally: An upward trend leading to increase in price of the asset. Can happen in both bear and bull market.
Accumulation: The process by which one builds a position in an asset.
Pattern: A chart pattern is a predefined shape that have been historically studied by technicians. Traders try to use these previous performance statistics to predict future price movements.
Fractal: A pattern of Price movement which has occurred earlier and might occur again.
Limit Order: Order will execute at a predefined price, if the market riches that price.
Market Order: An order to buy or sell at the current price level, executed immediately.
Time Period/ Time Frame: The time spread of each candle stick in a chart. Common time periods are 15min,30 min, 1Hour, 4 Hour, Daily and so on.
ATH: All-time highs .
Average Down: Trying to lower the average entry cost of a position by slowly buying the asset at reducing rates.
Liquidation: When you are stopped out of your position because the trade went in the opposite direction and your margins are not big enough to carry the trade anymore.
Arbitrage: A method of making profit using the pricing difference between exchanges. e.g If Bitcoin is trading at $50,000 on Binance and $50,100 on kucoin, People wil buy from Binance and sell on Kucoin.
Cryptocurrency investment is subject to high market risk. Please choose your investments cautiously. Only invest what you can afford to loose.
In next blog post we will start from reading candles and diving deep into it.
Technical analysis is a methodology of forecasting the price of any crypto/shares using past data(mainly price and volume. This blog series is specially made based on cryptocurrencies. I’ve tried to make this blog simple for extreme beginners. Before diving deep…