Technical analysis is used by investors to determine trends and analyze which assets to bet on. But you have to know how to interpret them
Without a doubt, it is the question of the two million Argentines who opened an account to operate with Bitcoin and other cryptocurrencies:when is the right time to buy or sell?
And the answer is not easy, since prices fluctuate – many times, exorbitantly – from one moment to the next. The most recent test was Bitcoin’s record of u $ s63,000 in mid-April: when everything indicated that he would reach the $ 100,000, depreciated up to half and today is trading around the u $ s45,000.
While no one can say exactly what the next move will be, there are tools that experts use to predict large fluctuations, maximize profits or at least reduce losses.
Before starting, it is advisable to have an investment strategy adjusted to the objective that the user wishes to fulfill. In this sense, Maximiliano Hinz, Latam Operations Director of Binance, affirms to iProUP that there are following profiles:
- “On the one hand, there is the trader, that buy and sell constantly to take advantage of these movements “
- “On the other, there is the holder, that simply acquire Bitcoins and save them waiting for it to revalue “
As a first measure, the executive recommends “start low and study as much as possible “the behavior of the crypto market.
“Do not despair if at first you lose, since it is normal. In the stock market there is a saying that 90% of traders lose 90% of their capital in the first 90 days. I don’t know if it’s true, but what is true is that being prudent is the most important thing: You don’t have to trade money that you can’t lose “, he completes.
To try to anticipate market movements, investors choose two methods:
- Technical analysis: to decide what to buy or what to sell
- Fundamental analysis: to determine when to enter or exit a position
While some prioritize one of the two, most experts claim that the best thing is to take what is necessary from each one.
“Technical analysis does not study the fundamental value of the asset, nor does it try to estimate if it is expensive or cheap from the point of view of its ‘quality’, as fundamental analysis does. Just try to predict its price“, clarifies iProUP Iván Tello, Operations Manager (COO) of Decrypto.la.
What do analysts do?
Technical analysis is the method of choice by the “wolves” of the crypto City. Tello remarks that it allows examining “any type of market in which there is supply and demand and predict the evolution of the price based on past behavior“.
Definitely, try to follow the trend and accompany it, never go in the opposite direction. In this regard, Iván Marchena, Chief of Operations of Arum Trade, supports iProUP that the main thing is “to find the entry and exit points of the market”.
“The price usually repeats a cycle, and technical analysis is used to find those points where to buy low and sell high, when to enter and exit a position. It serves to understand the behavior of the price “, complete.
Technical analysis allows you to anticipate price fluctuations, while the fundamental one focuses on the quality of the long-term asset
This type of analysis can be carried out from the data that is visualized in a virtual platform, such as TradingView, the most used globally. Hinz also refers to Blockchain Explorer, Coinmarketcap and Etherscan to follow the pulse of cryptocurrencies.
In TradingView investors can see charts represented by “Japanese candles”. These are vertical rectangles that are concatenated over time according to the behavior:
- Tall: will identify the difference between the starting and closing prices of the day
- Colour: if it is green, it means that the asset appreciated in that period. Otherwise, it will be displayed in red
- Quote: if the candle is green (bullish), the lower point will be the opening price and the upper one, the closing price. On the other hand, if it is red (bearish), those references are reversed
- Extremes: there are lines that cross these candles to indicate the maximum and minimum price of the day
This tool allows the investor to decide the timing that each candle shows: from one second to one month. Thus, each will show asset performance in each lapse and the graph will be formed. Technical indicators are added to the candles. That is, the statistics to analyze the price movements of an asset.
“The first indicator that every analyst or investor should observe before taking a position is the trend. As basic as it sounds, the best strategy is to accompany the assets in this trend, “says Tello. In this regard, Marchena, adds that” the most used technical indicators are the moving average, the MACD and the Bollinger bands “
The moving average is presented on the chart as a line which follows the price movement and is positioned below or above the candles. Represents the average of the values in which each candle closed and you can also configure how many periods will be taken into account.
The advantage of this tool is that it is suitable for both long-term investors and day-traders (those who buy and sell on the day). Its calculation starts from the average of the closing values of each period. There is also the weighted moving average, which gives more relevance to the latest closing prices.
It is also interesting see if the moving average is below or above the candles (prices), as well as the moment in which the intersection between the two occurs, what could anticipate the start of a trend:
- Bass player: if the moving average is above
- Bullish: if, on the contrary, the sails exceed it
As mentioned earlier, the other indicators that cannot be missing from the chart are:
- Bollinger Bands: lines that run through the bullish and bearish points of the last periods. They help measure volatility: the more the bands spread, the more restless the market will be
- Moving Average Convergence / Divergence or MACD: shows the market phase with information taken from the 12 and 26 period moving averages. When these two intersect, a trend reversal could come
- Relative Strength Index or RSI: reveals the power of a certain price movement, indicating overbought by being at the upper end and oversold by positioning at the bottom. It is calculated based on the average of the last 14 periods
Tello recommends paying attention to the “divergences” between the indicator taken as a reference and the price of the asset: “When a quote goes down, the indicator should converge and also go down. But nevertheless, there are times when the price decreases, but the indicator no longer accompanies and it may even start to rise. “
And adds: “This shows a divergence and, although by itself it is not a confirmation of a change in trend, it is a first sign that can help us decide if it is a good time to increase a position“.
Do not neglect fundamental analysis, which attempts to decipher the true value of an asset. In this sense, Marchena expresses: “Markets are very sensitive to news“That can make them lose sight of their value. And it raises Two examples:
“All this news influences the behavior of an asset. One has to know how to interpret them. Therefore, fundamental analysis is very important“, highlights the Arum Trade executive.
In addition, he remarks, it is important to be attentive to data provided by “the Federal Reserve, the US unemployment rate and the non-agricultural payroll that reflects the number of workers in that country”, since they can generate wide repercussions in the markets. . Hinz emphasizes that, unlike traditional finance, “the crypto market does not close, with which opportunities are given 24 hours a day. “
Experts Recommend Using Both Fundamental and Technical Analysis
This represents a great advantage for those savers who want to dedicate themselves to trading and do not have a lot of time in non-“working” parts of the week. Experts agree that there is no better strategy than another for putting money to work. But will always have more chances of success those who are better trained and put what you have learned into practice.
Nobody has the crystal ball nor can they know exactly what will happen tomorrow in the markets. But learn about strategies carried out by the “wolves of the crypto city”, researching and diversifying investment will be some keys to obtain better results.