Want to master cryptocurrency trading? Learn this technical analysis method first.

In the crypto world, many have experienced the nightmare of “buying at a high and selling at a low.” Why does this happen? Ultimately, it’s due to the lack of a scientific trading decision system.

To achieve stable profits in the cryptocurrency market, you need to solve three core issues:

• What is a reasonable buying price?
• How high can this coin go?
• How long do I need to wait to reach the target price?

The answers to these three questions are hidden in two analysis methods: Technical Analysis and Fundamental Analysis. The former looks for patterns in historical data, while the latter studies the project itself to find value. Combining both is the hallmark of a mature trader.

What exactly does technical analysis do?

Technical analysis is about studying past price fluctuations and using mathematical models to predict future trends. The core assumption is: the market does not fluctuate without reason; every price movement follows some logic.

The ultimate goal for traders is: buy low and sell high. Technical analysis helps you find these “lows” and “highs.”

But there’s a trap: technical analysis isn’t perfect. Different traders use different indicators, and their interpretations of the same signals vary. Cryptocurrency markets are highly volatile, so technical analysis should only be used as a reference, not a 100% prediction.

That’s why professional traders combine multiple tools and strictly implement risk management protocols.

How do prices move?

Cryptocurrency prices are like a seesaw, driven by supply and demand:

• Sell orders > Buy orders → price drops
• Buy orders > Sell orders → price rises

The key question is: when will this turning point happen?

The job of a technical analyst is to observe historical data and market sentiment to identify this “turning point.” They analyze chart fluctuations and trading volume to judge when the trend might reverse.

To do this, just looking at candlestick charts isn’t enough. Traders need to use various indicator tools, combined with price action and volume data, to sketch a clearer market picture.

Mastering these indicators means grasping the core of technical analysis

Simple Moving Average (SMA)

The moving average is the most common technical indicator and the easiest to understand.

Calculation is simple: add up the closing prices of the last N periods and divide by N to get the moving average value. For example, if the last three days’ prices are 1, 2, 3, the average is (1+2+3)/3 = 2.

Why is it called a “moving” average? Because each time a new candlestick appears, you recalculate the average. This line on the chart appears to “move,” always following the price.

The role of the moving average: smooth out short-term price fluctuations to see the big picture. Most of the time, prices oscillate around the moving average line.

Exponential Moving Average (EMA)

EMA is an upgraded version of SMA. The difference is: EMA is more sensitive to recent prices.

Imagine watching a fast-forwarded movie — the closer to the present, the clearer the picture. That’s the characteristic of EMA. When the market changes rapidly, EMA reacts faster than SMA.

Practical uses of EMA:

Buy signals:

• Price touches or crosses above the EMA line from below
• Price stays above an ascending EMA

Sell signals:

• Price falls below the EMA line

Advanced uses:

• Rising EMA often acts as support
• Falling EMA often acts as resistance
• When a fast EMA crosses above a slow EMA, it’s a strong buy signal (and vice versa)

But remember: EMA is a lagging indicator; its signals are always a bit late. Relying solely on it can cause you to miss the best entry and exit points. The strongest use of EMA is to confirm trend direction, not to pinpoint exact reversals.

Relative Strength Index (RSI)

RSI is a type of “oscillator” indicator. Unlike moving averages, oscillators fluctuate within a fixed range — RSI ranges from 0 to 100.

How RSI works: by comparing the magnitude of recent gains and losses over a period, it assesses the market’s momentum.

• RSI > 70: market may be overheated, near the top
• RSI < 30: market may be oversold, near the bottom

In highly volatile markets like crypto, RSI is a powerful tool for identifying extreme sentiment.

Stochastic RSI

Some advanced traders use “Stochastic RSI” for deeper analysis. It’s an indicator applied on RSI itself — processed through a mathematical formula.

Think of it as “an indicator on top of an indicator,” used to capture subtle shifts in market sentiment.

MACD (Moving Average Convergence Divergence)

MACD is generated by calculating the difference between two EMAs. The formula is:

MACD = 12-period EMA − 26-period EMA

Then, a signal line (9-period EMA of MACD) is plotted, and a histogram shows the divergence between MACD and the signal line.

Trading logic of MACD:

• When MACD crosses above zero → bullish signal
• When MACD crosses below zero → bearish signal

MACD is especially good at catching major trend reversals.

Bollinger Bands (Bollinger Bands)

Bollinger Bands consist of three lines:

• Middle: 20-period simple moving average
• Upper band: middle + 2× standard deviation
• Lower band: middle − 2× standard deviation

These lines form a channel, within which prices mostly move.

Uses of Bollinger Bands:

• Assess volatility: wider bands = higher volatility; narrower bands = lower volatility
• Identify support and resistance: prices touching the upper band often face resistance; touching the lower band often finds support
• Predict reversals: extreme touches at the edges may signal upcoming reversals

Price Action Trading

This isn’t a specific indicator but a trading philosophy: only look at how prices move.

Some traders avoid indicators altogether, relying solely on candlestick patterns, trendlines, support and resistance levels. This is called “naked trading.”

Why do some do this? Price action is everything. Volume, candlestick formations, high and low points — all reveal what the market is thinking.

The core of price action trading is identifying the characteristics of trend waves:

• Uptrend: higher highs and higher lows, with new highs continually rising
• Downtrend: the opposite logic
• Range-bound: prices oscillate between support and resistance

Candlestick patterns: visual expressions of market psychology

Japanese merchants invented candlestick charts over 300 years ago. Each candlestick tells a story.

Three key elements of a candlestick:

• Body: the distance between open and close prices

  • Green (or white) = close > open (bullish)
  • Red (or black) = close < open (bearish)

• Upper and lower shadows: represent the highest and lowest prices of the day

  • Long upper shadow = market tried to go higher but was pushed down
  • Long lower shadow = market tried to go lower but was pulled up

By observing candlestick patterns, traders can gauge the strength of buyers and sellers, predicting the next move. Certain recurring patterns (like “shooting star,” “hammer,” etc.) often indicate trend reversals.

Pivot Points: Objective support and resistance

Many professional traders use pivot points to identify support and resistance levels.

Advantages of pivot points? They are entirely objective, requiring no subjective judgment.

Pivot points are calculated based on the previous candlestick’s high, low, and close:

P = (Previous High + Previous Low + Previous Close) / 3

From this pivot point, you can derive two support levels and two resistance levels:

• S1 = 2×P − Previous High
• S2 = P − (Previous High − Previous Low)
• R1 = 2×P − Previous Low
• R2 = P + (Previous High − Previous Low)

If the price breaks above the pivot point → bullish signal. If it breaks below → bearish signal.

Fibonacci retracement: The intersection of math and markets

Crypto markets rarely rise or fall in a straight line. Usually, after a big surge, there’s a small retracement, then the trend continues.

Traders use Fibonacci retracement levels to judge where the price might bounce back and resume the move.

The magic of Fibonacci ratios: 0.618, 0.382, 0.236 — these ratios appear repeatedly in nature and markets.

Technical analysts draw horizontal lines on charts at these key levels, which often serve as support or resistance.

Using Fibonacci lines:

• Best combined with MACD, trendlines, moving averages, etc.
• Relying on a single Fibonacci level can be unreliable.
• The more indicators you overlay, the more reliable the signal.

Final thoughts: More tools don’t mean better use

The goal of technical analysis is to help you find high-probability trading opportunities in the crypto market. But here’s the reality — there’s no perfect indicator.

All technical indicators are based on historical data and are lagging. Sudden changes in Bitcoin and other cryptocurrencies often exceed what models predict.

What mature traders do:

1. Select 2-3 trusted indicators
2. Strictly follow entry and exit rules
3. Prioritize risk management, then maximize profits
4. Continuously review and optimize strategies

Technical analysis + fundamental analysis = the strongest combination. Use technicals for short-term entries, fundamentals for long-term direction. This way, you can catch market volatility while avoiding false breakouts.

Learning technical analysis takes time and practice, but once mastered, you’ll have a lifelong trading weapon.