Bitcoin is one such well-known cryptocurrency. To invest in it, you need to understand the technical analysis behind Bitcoin. After all, without technical analysis, trading cryptocurrencies becomes a dangerous guessing game!
This blog is a bit technical, but it is meant to help beginners understand the basics of Bitcoin and how technical analysis can help them make informed investment decisions. If you want to be a successful investor in cryptocurrencies, then this blog is a great starting point.
Why Should Beginners Begin with Bitcoin? If you are new to the world of blockchain and cryptocurrency, it can get overwhelming to filter out reliable cryptocurrencies from unreliable ones. Several cryptocurrencies, popularly dubbed “meme coins”, like Dogecoin, Shiba Inu and Poocoin, have popped up in recent times and have cost rookie investors a large chunk of their investments. On the other hand, Bitcoin is a much safer (if not the safest) cryptocurrency to invest in. It is the first deflationary crypto token to come into existence and has recently reached an all-time high (ATH) of over USD 65,000 per Bitcoin! Here are some more reasons to trust Bitcoin: 1. Most decentralised cryptocurrency 2. Deflationary token 3. Publically available whitepaper 4. Proof of Work (PoW) mechanism 5. Crystal clear tokenomics
Technical Analysis: An Overview On the broader spectrum of things, there are two kinds of Bitcoin investors: 1. HODLers – People who buy Bitcoin with no intention to sell for several years. 2. Traders – People who buy Bitcoin intending to sell it quickly at a profit. If you want to grow your money faster than traditional methods by investing in Bitcoin, honing your technical analysis skills is critical. Technical analysis uses the concept of price patterns from the past and technical indicators to analyse the charts and predict the future movements in price. This can be applied to any market, including cryptocurrencies such as Bitcoin (BTC). When done right, technical analysis helps you accurately predict the lows and highs of Bitcoin prices over different time periods. Such predictions will help you make educated and data-driven decisions on buying Bitcoin at a good price and selling at a profit.
Getting Started with Bitcoin Technical Analysis Indicators To get started with technical analysis, you need a platform that provides reliable and advanced tools for the same. WazirX , an Indian cryptocurrency exchange backed by the world’s largest crypto exchange, Binance, provides all the necessary tools and more for a beginner to get started with Bitcoin technical analysis. Here are two indicators to get started with for beginners: 1. Moving Average Weighted (MAW) MAW is used to gauge the overall sentiment that is generally felt throughout the market. This is done by analysing the price fluctuations in the occurrence of the short, mid and long-term moving averages. The moving average is calculated by simply taking the average of the data points in a given period of time.
The above image shows the MAW of the BTC/USDT pair. Upon observation, you can conclude that when the MAW line (blue line) is over the bars, it indicates a downward trend. Similarly, when the MAW line is under, it indicates an upward trend. Note that MAW should be preferably used to analyse price movements over a shorter period (days or hours) and not over long periods like months or years. 2.Relative Strength Index (RSI) RSI is a ‘momentum indicator’. It works by comparing the magnitude of the recent growth to recent downturns to measure the speed and change of price movements. It oscillates between 1 and 100. It is a general belief that RSI should be under 30 for buying and over 70 for selling.
The picture you see above shows the RSI graph of the BTC/USDT pair. As you can see from the example, Bitcoin exhibited an upward trend every time the RSI reached a major low and exhibited a downward trend when RSI peaked. In simpler words, the lower the RSI, the more undervalued is the asset. 3. Williams Fractal This is a momentum indicator, and it is based on the ADX formula. While ADX can help you dive into the micro, Williams Fractal is a great indicator for a quick macroscopic view of the momentum trends. This oscillating indicator shows the strength of both the upward and downward movement in the price of an asset. Let’s illustrate this with an example of the BTC/USDT pair.
As you can see in the image above, most upper arrows are accompanied by a price dip and most downward arrows are accompanied by a price hike. The downside to this indicator is that it often produces several false positives. Hence, using other indicators like ADX and RSI in conjunction with Williams Fractal is advisable to make better trading decisions.
Fundamental Analysis vs Technical Analysis Fundamental analysis is based on the idea that the price of an asset is determined by underlying factors such as the company’s performance, management and market size. On the other hand, technical analysis does not consider any economic or fundamental factors. It is purely focused on the chart and the indicators like RSI, MACD and candlestick patterns.
Conclusion To conclude, Bitcoin trading is definitely an exciting market, one that many people want to get involved in. However, it is important to understand the cryptocurrency market before you begin trading. If you are interested in getting started with Bitcoin trading and understanding the intricacies of technical analysis, get onboarded on WazirX and start with as little as INR 100!