Cryptocurrency technical analysis explained: Candlesticks, moving averages and more

Technical analysis is a popular way to predict the price movements of an asset by using mathematical indicators based on its past performance. Technical analysis uses real-world data, such as a specific cryptocurrency's past statistics, to predict its future. One of the main principles behind technical analysis is that "history repeats itself", especially when we consider pricing and trends.  

Technical analysis is also based on the assumption that price movements are never random but always follow trends. It means a cryptocurrency's past trading activity and price changes can help determine its future performance. However, instead of focusing on why, technical analysis focuses on what and when to help traders identify market trends and try to use them to their advantage.

When you compare cryptocurrency exchanges, you'll find each one offers different benefits and features. While most crypto exchanges will show you price charts and give you options to trade multiple cryptocurrencies, some platforms also offer advanced technical analysis tools to traders, like price charts, candlesticks, and moving averages. Here's an introduction to how you can use some of these tools and indicators to assess different crypto tokens.

Candlestick charts use bars with wicks (that look like candlesticks) to visually depict a cryptocurrency's price movement over a particular time period. 

Each candlestick conveys important information. A green candlestick indicates a price rise while a red candlestick indicates the crypto has fallen in price. The top and bottom of the body of a candlestick represent the opening and closing prices of the crypto. So, when you see a green candlestick, the bottom indicates the opening price, while the top shows you the closing price. On the other hand, red candlesticks show the opening price of the crypto at the top and the closing price at the bottom. 

A key aspect of candlesticks are the 'wicks' that represent the highest and lowest prices of the day (or any other period for which you're seeing the candlestick chart). The size of the wicks are considered helpful in understanding the volatility in the asset's price.

Understanding support and resistance levels can make it easier for you to use various charts and graphs for crypto analysis. These levels are calculated based on past price movements and represent the breaking or making points that are indicative of a potential bear or bull phase.

The support level is indicative of the price point where the market has previously consolidated. It is the price beyond which the downtrend (or the fall in prices) is likely to pause, mostly due to increased buying activity or demand. In simpler words, this is the maximum level a cryptocurrency is expected to fall. At this price, the demand for a token usually picks up and thus prevents the price from falling further. 

The resistance level is the opposite of support. When the price of a cryptocurrency reaches the resistance level, buyers are less inclined to buy tokens at that price and more inclined to sell them. This is generally the maximum value a cryptocurrency is expected to gain before the price starts falling.

Moving averages can be used to track the price trend by considering the average of a crypto's past prices over a defined period. The time period can be adjusted to suit your investing style, such as whether you want to see the price movements over the short or long term. Common periods used by crypto traders are generally 50, 100, and 200 days.

The moving average is calculated by adding the closing price of a cryptocurrency over the required number of days. You then divide the total by the number of days to get the average for that specific set.

Moving averages are generally used to determine support and resistance levels to find the right entry point into the market. Moving averages also help you identify price trends. If the moving average graph slopes upwards, it indicates an uptrend, which means the price is rising. A downward sloping graph, on the other hand, indicates a downtrend. 

These are some of the basic indicators and tools for cryptocurrency technical analysis. Even though these tools are tried and tested to give probable price predictions, you should remember that nobody can actually predict how the crypto market will move.

There are several factors outside of past performance that influence the price of a coin. Factors such as the fundamentals of the coin (use case, market cap, and trading volume), government regulations, and even influencers (also called crypto whales) can cause prices to sway up and down. It is, therefore, important to exercise caution when investing in cryptocurrencies and try to limit your investment to an amount you can afford to lose. You could also consider exploring other investments and savings options, apart from cryptocurrency, to diversify your risk and try building a balanced portfolio.