Technical Analysis is a trading tool employed to evaluate securities and attempt to forecast their future movement by analyzing statistics gathered from trading activity, such as price movement and volume.
Essentially, technical analysts look at a cryptocurrency’s charts to determine where it’s price will be based on where it has been in the past. They will look for specific indicators to decide when and how the cryptocurrency will or should be traded. They will look at how much of the cryptocurrency is being traded, the past high’s and low’s, and the 100 and 200 day moving average to determine trends that can be used for their predictions. Technical analysts believe that price changes are not random. They believe psychology plays a big roll in investing for people.
Probably the most popular indicator that technical analysts use is the 100 and 200 day moving averages. They look for the resistance line (previous high or low point) based on the average resistant lines based on either the 100 or 200 day moving average. From there, they can estimate where a cryptocurrencies price might correct itself.
For example, if a cryptocurrency’s price is dropping, they will see what the 100 and 200 day moving average is to see at what point they think the price will hit before it corrects itself and goes back up again. As you can see in the diagram below, the price of Bitcoin hit the 200 day moving average before it corrected itself and started moving back up again.
Of course, technical analysis does not always work. If a cryptocurrencies price goes below the 200 day moving average, then the technical analyst will look at the next resistance line. Check out our article on Fundamental Analysis.