How To Spot Trends Using Price Action Analysis

How to identify the trends using the analysis of the price action in cryptocurrency

The world of cryptocurrency has witnessed a significant increase in popularity in the last ten years, with many investors who crowd themselves with trading and speculating on the market. However, identifying trends in the cryptocurrency space can be a challenge due to the complex nature and constantly evolving these markets. In this article, we will deepen the way in which the analysis of prices can help traders and investors to identify cryptocurrency trends.

What is price analysis?

The price of action analysis (Paa) is a fundamental approach used by operators to analyze the movement of the prices of financial exchange activities. It implies the examination of the trend and the models of price movements over time to make informed trading decisions. Paa takes into account various technical indicators, such as mobile media, RSI, Bollinger bands and others, as well as traditional graphs models such as trendy lines and levels of support and resistance.

How the analysis of prices works

To identify trends using Paa, the traders follow these steps:

• Select a trading interval : identify the upper and lower limits of a trading interval, which is generally characterized by a significant price move.

• Analyze the graphic models : looking for recurring reasons on the graph, such as:

* Inversions: when prices break out a level of support or resistance, indicating a potential reversal tendency.

* Breakout: when prices reach a new maximum and then reverses immediately, reporting a strong tendency to rise.

* Head and shoulders: a classic graphic model that can indicate a continuation of the tendency or inversion.

• Calculate indicators

  

  : Use technical indicators to measure the strength and direction of price movements. The common indicators used in Paa include:

* Medium mobile (but): average prices for a specified period, indicating the momentum of the trend.

* RSI: a relative resistance index that measures the extent of the recent variations in prices.

* Bollinger gangs: a volatility indicator that traces two mobile averages with a distance from each other, which represent the interval inside which the prices are likely to move.

• Combine the indicators : combine multiple indicators to create a paa system that provides a complete view of market conditions.

Identification of the tendency in cryptocurrency

When using Paa in cryptocurrency, traders focus on identifying trends and models in prices over time. Here are some specific suggestions:

• Look for inversions : identify when prices break through support or resistance levels, reporting a potential reversal tendency.

• Analyzes the Breakout models : look for the breakout models on the graph, as a strong trend after a pulback or a weak downhill tendency after a tendency to rise.

• Pay attention to volatility : recognize when prices volatility increases or decreases, indicating changes in the feeling of the market or in economic conditions.

Example: Identify the trends using the analysis of the price action in Bitcoin

Suppose to analyze the graph of Bitcoin prices in recent months and to identify a strong trend reversal from November 2019 to January 2020. The graphic descent shows a significant break-through through levels of resistance to $ 30,000, followed by a strong trend.

Using Paa indicators, like the RSI and Bollinger bands, let’s calculate:

• Media mobile: the short term but in the short term (20 periods) is close to $ 27,500, while the long term (50 periods) is approximately $ 38,000.

• RSI: the RSI at 70 indicates a strong overload condition, indicating that the prices are due for a correction.

• Bollinger bands: the price is exchanged in a mobile interval of 20 periods of $ 28,000 to $ 40,000.

On the basis of this analysis, we identify a potential reversal to the trend and begin to exchange the activity with a strong trend. Over time, we continue to monitor the graph and adapt our operations accordingly, taking into account various market conditions and risks management strategies.

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