Technical analysis and cryptocurrencies Does it make sense

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Technical analysis in crypto trading explained – why is it important?

There are many different considerations to make when trading cryptocurrencies. Many traders are already familiar with fundamental analysis, where you judge an investment based on the merits of the project.

However, there is another type of analysis that seems to be much harder for those who are new to crypto trading to grasp. This is called technical analysis. While it does take some work to master, the basics are not difficult, and it can be very useful to learn. In this article, we’ll go over what you need to know to get started.

What is a cryptocurrency technical analysis?

TA focuses on the current and past chart activity of a crypto coin. Technical analysis doesn’t even necessarily care what a token or cryptocurrency does or even what their plans for the future are. The only question that TA wants to answer is how the market will react to this asset based on patterns.

How does technical analysis work?

In TA, investors carefully analyze the charts of their chosen cryptocurrency. They are looking at the big picture here, and they may go back months or even years in the chart data to try to identify patterns.

These aren’t random patterns, and they’re actually looking for known indicators and shapes which repeat themselves that will allow them to make a guess as to what way the market will be moving. Many people use this strategy successfully to decide when to buy or sell their cryptocurrencies.

Is it effective in cryptocurrency trading?

This depends on who you ask. Some people swear by technical analysis, but others think it’s not applicable to cryptocurrencies at all. The truth likely lies somewhere in the middle. That means that while TA can be effective when trying to trade crypto assets, it should not be the only thing you take into account. It’s also wise to do fundamentals analysis of your investments.

There are of course outliers which TA is not good at predicting. These could include massive price movements caused by market disturbing news, these are unusual situations and they could throw a wrench into your TA plans. In other words, don’t try to use technical analysis on margin if you don’t know what you’re doing or you’re going to have a very bad day.

How to learn technical analysis for crypto trading?

The best way to learn how to trade using TA is to follow people who already are doing it. There’s tons of video tutorials out there and a number of others sites where cryptocurrency traders share their technical analysis which you can learn from. Look at these patterns and learn how to identify them for yourself in your own charts and trades.

What are the technical analysis main indicators?

There are many different patterns and indicators which are used for technical analysis. However, if you are just getting started, it’s best not to get overwhelmed. Instead, focus on learning to use these first. Learning the basics will allow you to better understand how TA works before diving too deep and getting information overload.

Trend Lines – A trend line is a line that follows the path in the way a cryptocurrency is currently trading. While TA experts make it look easy to just draw a line on the chart, this can be easier said than done. It is, however, an important indicator to learn.

Resistance and Support levels – Support levels are the price at which the coin or token has found support. This refers to whether there is a healthy buying activity that will keep the price afloat, or if there is significant selling activity which will drive the price down.

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Moving averages – Another trend line to help you to identify trends. This trend is based on the average price of a coin or token over a certain period of time. You can use this to identify potential support levels or to mark opportunities where the assets hit lows and highs.

Trading Volume – It’s very important to watch trading volume because it can play a big part in trend recognition. If the volume has been continually decreasing, then the favorable prices which investors have experienced are likely to end soon.

Why technical analysis is important?

TA allows you to view a crypto investment objectively. It can allow you to separate yourself from how much you love a certain project and see the real market at work behind it. It can also be an important tool for learning when you’re about to lose a ton of money on your longs or making some fast money in shorts.

Why technical analysis may fail?

TA identifies trends. One time catastrophic events can’t really be seen in trends, and if something like this happens, then your TA could fail spectacularly. This is why you should always have a backup plan and never wrap up all of your capital in one trade.

Technical analysis tools for cryptocurrency trading

Bitsgap offers investors access to a wide array of advanced trading tools which can be used for technical analysis. The trading platform allows you to trade on multiple exchanges so you can see the big picture, and the dashboard can be as simple or as complicated as you need it to be, allowing you to learn at your own pace.

By using Bitsgap as your trading platform of choice you’ll be able to practice drawing trend lines right in the exchange, and you can use Bitsgap’s demo trading features to test how good your TA skills are without actually losing any real money.

Technical analysis versus fundamental analysis

While technical analysis is more concerned with identifying trends and market patterns, fundamentals analysis is more concerned with whether an asset is over or undervalued.

Someone performing a FA would likely want to look deeply into the project and identify how strong it is. An investor practicing only TA would not likely care about this, and they would only be interested in what the chart is telling them.

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Cryptocurrencies don’t make sense

Jon Danielsson 13 February 2020

Cryptocurrencies are supposedly a new and superior form of money and investments – the way of the future. The author of this column, however, does not see the point of cryptocurrencies, finding them no better than existing fiat money or good investments.

I have been trying to understand what the point of cryptocurrencies is, without success. They may not be an immediate financial stability concern (den Haan et al. 2020), but I just don’t get them.

As far as I can tell, they are supposed to be some combination of:

  • a type of money;
  • an investment;
  • something that provides privacy and security and efficiency;
  • something else, new and magical and mystical that I am too stupid or old to understand.

Are cryptocurrencies money?

What do we need money for? Three things:

  • facilitating transactions;
  • a store of value;
  • lending of last resort.

Any form of money should be evaluated according to those criteria.

We have used many things throughout history as money, like seashells, cigarettes, silver and gold. These are all scarce real assets with value to their users, available in small units and easy to transact.

No country has such money anymore. Instead, what we use is fiat money, a currency without any intrinsic value. Paper printed by the government, whose quantity is amplified by the financial system. It is only valuable because the government guarantees it is.

Fiat money issued by a credible modern central bank is vastly superior to money based on real assets like gold, not least because the supply of fiat money can be adjusted to best serve the economy, rather than be dominated by the production of some natural resource. The volume of cryptocurrency cannot be adjusted in the same way.

Of course, governments are tempted to abuse fiat money and print too much, as the first creator of fiat money did, the Chinese government in the 13th century. More recently, the stagflation of the 1970s is due to the central banks being bad stewards of money.

Because the governments of the time could not be trusted, several thinkers proposed free monetary systems, such as Hayek in 1977, discussion which presages current cryptocurrency debates. Still, advances in monetary policy eventually gave us more stable money by the 1980s.

So how do cryptocurrencies stack up on the criteria for money mentioned above: as a store of value, ease of transactions and for lending of last resort?

They are vastly inferior for transactions. Transactions with cash are costless, anonymous, and immediate. Electronic transactions are very cheap and also immediate, and can be done in any amount.

Bitcoin transactions take an hour or more, with a cost of at least $25, and they are not all that anonymous. Yes, there are cryptocurrencies that promise more efficiency or privacy. But even then, while it can take a long time to find someone who accepts Bitcoin, it is much longer with the competitors. Meanwhile, the largest amounts that can be transacted by cryptocurrencies are dwarfed by those one can transact with fiat money.

And what about store of value? Neither cryptocurrencies nor fiat money have any intrinsic value. What matters is credibility – our expectation that the money will retain its value over time.

For fiat money, the central banks are committed to keeping its value stable at a decreasing rate of 2% per year. The major central banks have been quite successful at keeping their tracking error small for a long time.

Bitcoin and other cryptocurrencies are much inferior in this regard. Their value doubles or halves in a span of few days. One cannot say with any degree of certainty that one’s holdings of cryptocurrencies will hold their value over the next week, not to mention a month or year. If one holds cryptocurrencies, it is for speculative reasons, not as a store of value.

That leaves lending of last resort (LOLR), providing liquidity to financial institutions in times of crises. This has been an essential function of central banks ever since Walter Bagehot’s 1873 analysis of the 1866 crisis. LOLR was last used in 2008, and will certainly be needed again at some point in the future. There is no such facility in any of the cryptocurrencies.

If cryptocurrencies are money, they are a much inferior money to existing fiat money.

Are cryptocurrencies investment?

Cryptocurrencies, along with fiat money, have been called Ponzi schemes. Not quite. The definition of a Ponzi scheme is an investment where existing investors are paid for by new investments. Neither cryptocurrencies nor fiat money fit the definition.

But are the cryptocurrencies an investment? It depends on what one means by investment.

The value of a stock or a bond reflects future income appropriately discounted to the present. Not so with cryptocurrencies or fiat money. They have no intrinsic value. Their value is caused by scarcity, as well as the cost of mining or government promises. However, mining is sunk cost, not a promise of future income.

The only reason cryptocurrencies retain value is because we expect other people in the future to value them the same, or more than we do now. Just like collecting stamps. The value of stamps is created by scarcity and expectations of future investors pricing them more highly than we do now.

Cryptocurrencies are not an investment in the same way as a stock or a bond. They are an investment in the same sense as stamp collections are.

However, even then, most people don’t use fiat money directly as a store of value except in small amounts. At the very least, one can keep fiat money in a bank account or government bonds that earn interest. An investment that is as safe as the government. The possibility of such near riskless lending at stable rates is absent for cryptocurrencies.

So if cryptocurrencies are an investment, they are more like stamps or lottery tickets than fiat money, stocks, or bonds.

Credibility

The intrinsic value of fiat money is underpinned by the credibility of the government and the central banks tasked with controlling money.

Central banks are independent and with considerable political cover, essential to ensure the credibility of fiat money. Countries that disregard the latest developments in monetary policy, like Venezuela, do that to their cost.

Central bank independence, political cover, and reputation for competence are key. Jerome Powell, the current chair of the Federal Reserve system, is the most powerful bureaucrat in the world. General Joseph Dunford, Chairman of the Joint Chiefs of Staff, might have nuclear weapons in his arsenal, but he reports to President Trump. Jerome Powell does not.

While our faith in central banks has increased considerably since Friedrich Hayek wrote his article cited above, it could still be higher. However, I can download detailed performance statistics on fiat money dating back decades. I know the supply of money and I know the policy tools used and I can make up my own mind. Information about cryptocurrencies and other activity statistics is much harder to come by and they have a much smaller history.

The value of the euro and of the dollar is underpinned by the credibility of the ECB or the Fed. With cryptocurrencies, it is the credibility of some unknown entities and processes.

I trust the central banks in developed economies much more than I trust any of the cryptocurrencies.

Privacy and security

That leaves privacy and security.

Cash is 100% anonymous, but one is at some risk of theft. Electronic transactions are not anonymous, but are safer.

While some cryptocurrencies promise anonymity, the most popular, Bitcoin does not, unless one is really careful in hiding one’s tracks using skills that are only available to a small group of users. The reason is that transaction records on the blockchain cannot be changed or deleted and are therefore searchable.

Meanwhile, not a day passes without reports of theft from cryptocurrency investors. The best advice is to keep one’s private key on an air-gapped burner laptop.

Cash and electronic money are also subject to theft. Still, there is no need for a private key with cash transactions and keys are much less important for electronic cash transactions. There are multiple layers of security that protect us. The fiat money of non-expert users, provided they take basic precautions, is very safe.

I feel quite confident in doing online banking without resorting to an air-gapped burner laptop.

Cryptocurrencies are only safe from theft if one is expert and takes elaborate precautions. We are much more likely to be a victim of a crime with cryptocurrencies than cash or electronic money.

Cryptocurrencies are inferior to most fiat money and investments, while they do not provide privacy or security.

When I say this to advocates of cryptocurrencies they usually respond in two ways – that I don’t understand cryptocurrencies, and that they have new and wonderful qualities that I miss.

There are many things I don’t get, but I have put some effort into understanding the mechanics of cryptocurrencies. However, one can know all the mechanics, all the geeky technical details, and still not have a clue about what they mean.

Take as an example human beings. I can know all the physics and chemistry and physiology, understand how molecules and organs operate, yet still don’t know the first thing about an individual.

Its the same with cryptocurrencies. Knowing the mechanical details does not translate to understanding their economic function.

Cryptocurrencies are more like a religion or a cult, not a rational economic phenomena. They even have their own foundation myth, the elusive Satoshi Nakamoto.

Forex forecast for EUR / USD: it makes sense to talk about the continuation of the correction to 1,1450

The technical picture of the pair EUR / USD in the Forex market suggests the continuation of the previous correctional week

The past week for the euro / dollar pair can safely be called corrective. The beginning of the week was marked by an increase in the euro amid the results of the early parliamentary elections in Greece.

Forex forecast for EUR / USD: correction week

Despite statements by representatives of the new Greek government about refusal of financial assistance from the troika of creditors, market participants doubt that countries and organizations that provided loans to Greece will simply take it and “release” it from the Eurozone.

On Wednesday, January 28, the results of the Fed meeting were announced. As follows from FOMC accompanying statement, the regulator will not rush to increase interest rates, which also did not become any news for the market. The strengthening of the dollar that followed was moderate and slightly blurred the “beauty” of the correctional picture.

The new week will bring official data on the US labor market, which on Friday, February 6, will traditionally increase volatility in the euro / dollar pair.

It was the turn of evaluating the technical picture that had developed by the beginning of the week.

Hourly chart: the triangle will solve everything

On the hourly chart, the price has “hammered” into the TA figure, which can be classified as a “triangle” or “wedge”. According to the classical rules of technical analysis, breaking the border of the figure is carried out after the price passes 2/3 or 3/4 of the figure. Accordingly, in the near future we can expect a breakdown of one of the boundaries of the triangle.

Fan moving averages deployed horizontally, EMA 14 (red) and EMA 50 (green), almost converged in one line at 1,1310, at which the price was “stuck”. If this level is overcome, we can expect an increase to 1,1375 (EMA 200) and 1,1450 / 70 (the midline of the medium-term downtrend). Otherwise, the pair may fall to 1,1095 (previous low) and 1,1070 (support line for the medium-term downtrend).

The MACD indicator histogram shows minimal dynamics, balancing near the zero line, confirming the presence of a triangle.

The RSI is in the middle between levels 30 and 70, it does not give clear signals.

Euro / dollar pair, hourly chart

Daily chart: reach EMA 50

On the daily chart, the correctional phase is visible within the medium-term downtrend. An obstacle to the price are the levels of 1,1375 (EMA 14) and 1,1450 / 70 (the midline of the trend). If they are overcome, the next resistance level will be EMA 50 (green).

The fan of the moving averages EMA 200, 50 and 14 is still turned down in descending order, characterizing the continuation of the downtrend movement.

bar chart MACD indicator is in the negative zone, a depression is formed, the signal line crossed the histogram, which can be regarded as a signal for a possible continuation of growth.

The RSI indicator crossed level 30, exiting the oversold zone, indirectly confirming the possibility of further correction.

Euro / dollar pair, daily chart

According to experts of ForTrader.org magazine, the most likely scenario for the euro / dollar pair for the coming week is the continuation of correctional growth, which may end on Friday after publication NonFarm Payrolls Report.

ForTrader.org experts draw attention to the fact that the Forex forecast for EUR / USD is not a trading recommendation, but represents a subjective opinion about the situation on the market.

FORTRADER magazine experts

FORTRADER Magazine is a large team of experts in trading in financial markets. Traders, managers, investors, programmers, testers, technical administrators – we all work for you every day for many years. Sometimes we write articles together, then the whole journal becomes the author.

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