A pennant is also a flag, but the kind that looks like a sideways triangle see below. When charting crypto prices, technical analysts look to pennant formations for bullish or bearish price signals. In technical analysis, the difference between the flag and the pennant is that with flags the trend lines are horizontal, whereas pennant trend lines converge in the shape of its namesake, a triangular flag: Ether faces selling pressure ahead of the U.
CPI report. Source: TradingView, CoinDesk Apart from the shape of the consolidation period, the pattern for a pennant is pretty much the same as the flag: There is an upward or downward movement, known as the flagpole, followed by a consolidation period marked by low trading volume that precedes a high-volume breakout. Traders can try to take advantage of a bearish or bullish pennant.
To take advantage of a bullish pennant, they might spot higher than usual trading volume in the initial breakout period — the pole. If so, traders might buy the cryptocurrency during the consolidation period while prices stagnate and volumes swindle. The technical analyst submits that this is because supply and demand are pretty well balanced, marking an uneasy equilibrium that precedes a price rise or fall. These periods of unsettling calm are different from the periods of consolidation in the pennant and flag because they tend to but not always last for far longer — weeks or months, rather than hours or days.
This might include watching prices like a hawk to check for other trends or scrutinizing trading volumes to work out if the trading volume of sellers matches that of buyers. Wedges Wedges are price formations that are identified by two converging trendlines. Unlike pennants, which converge along a horizontal axis, wedges converge in an upwards or downwards direction. Read More from Trading Week: 9 Survival Tips for Crypto Winter During the initial phases of the wedge, there are large distances between the upper and lower price swings.
Over time, these prices converge and volumes may dwindle. If so, the keen technical analyst may identify this as a signal of a potential price reversal. Ether's daily chart showing a falling wedge breakout in Sept. In recent years, they have pushed to integrate their tool set with the most popular cryptocurrency exchanges and the results are impressive. Their online charting tools are open to both free users and pro users.
A free account should be more than enough for most traders to get started and learn the basics of technical analysis. Free accounts still have access to the same professional tools as pro users but are limited to three technical indicators and overlays per chart. Coinigy Coinigy is another extremely well known technical analysis tool in the world of crypto. This tool is considered a charting tool but is bundled with many other features to help traders develop and execute their strategies.
In addition to using the same indicators available on TradingView, users can setup SMS text alerts on custom events as well as execute trade orders across their exchanges.
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IS INVESTING IN CRYPTOCURRENCY A GOOD IDEA
All that matters is whether technical analysis is able to provide you with the right tools and indicators to get better returns than you would if you did not use it. Whether the High Frequency trader can get better levels and faster execution should be irrelevant to your decision of whether you should use it. Their systems costs millions of dollars to develop and operate, your home PC is incomparable. Moreover, it misses the broader point about these firms.
Many of the trading algorithms that are run by these firms operate based on inputs similar to those that are used in technical analysis. This should further add weight to the argument that technical analysis can work when applied correctly. Technical vs. Fundamental No trader should do their analysis in isolation. They should try and incorporate other points of view and analysis into their decision making in order to build a fuller picture.
Having said that, there are at least two advantages that Technical Analysis has over the likes of the more research heavy fundamental analysis. Less Opinionated External research reports that are based on fundamental inputs are often way more subjective.
You have to draw a conclusion of the long-term prospects of a company, commodity or cryptocurrency based on a range of different factors Economic growth, sector growth, CEO vision. Technical analysis and Fundamental Compared. Image Source These are much more subjective than a collection of price levels which are completely verifiable. When you are trying to interpret a chart, it is only your analysis that counts.
You are unlikely to be swayed by the view of the person who is drawing up the research report. Better for Risk Management: When an investor is entering a position based on their fundamental research, they are doing so based on their fair value assessment of the price of the asset.
This means that they will usually hold the asset over a long period of time in the hope that the price will eventually reflect that. The problem with this is that they leave very little room for their analysis being wrong. They have invested the time and the effort into their research and are way less likely to give up on the trade even if it is going against them. Technical analysts, on the other hand, mostly trade with stop losses. They will often incorporate their stop loss, limit and take profit positions based on technical levels.
Hence, if a trend does not confirm their analysis, they will have the adequate backstops in place. Technical traders can be considered more methodical in this sense. They have no qualms in giving up a trade and quickly cutting losses if it appears that they could have been wrong. Crypto Technical Analysis So it is clear that technical analysis can work when used in a risk controlled way by disciplined traders.
But can it be used effectively in the nascent cryptocurrency markets? Well, it really depends on what coins you are trading. Technical analysis is likely to work more effectively in the markets that are liquid and where there is a greater degree of volume across a range of exchanges. Trying to read the charts of some mid and micro-cap coins is much less effective. This is because there is a great deal of market manipulation that takes place in the smaller market cap coins. There are pump-and-dump groups and crypto whales that will try and create movement and interest in a coin in order to cash out on less experienced investors.
Risks of Pump-and-Dump activity in low cap coins What you may interpret as a price that has broken a trendline could merely be the actions of some nefarious traders goading less experienced ones. Pump-and-dumps also bring volume with them which is usually also another important indicator used in technical trading.
Moreover, with thin markets prices are likely to gap much more easily. This means that levels could easily shoot past your stop orders or be hard to exit when you would like. Artificial markets and artificial demand could quickly deplete your portfolio. What does this mean? Stick with coins that you know have a lot of volume and are not as susceptible to market manipulation.
For example, the coins that are in the top 10 of market capitalization are likely to be the most secure from a market efficiency standpoint. What Makes a Good Technical Trader? It is important to note that technical analysis is a tool and like most tools, it can be used correctly and incorrectly. If you are using technical trading and are not doing so in a systematic and methodical way then you are gambling. If you are firing off trades based on one or two levels that you think might confirm your view then you are being unsystematic.
Indeed, there are also many technical traders who try to bombard the charts with hundreds of indicators and try to develop a strategy that is comically bad. You should not be doing technical analysis just because you can. Colouring book or technical analysis?
Image Source It is also important to point out that emotions should be completely disregarded in trading generally and in technical analysis specifically. You should be placing and exiting your trades based solely on what the charts and analysis is telling you. You should never run a bad trade and remove your stop losses to chase losses.
This is not a roulette wheel in Vegas. This is a highly systematic but sometimes idiosyncratic market that needs a disciplined and methodical trader to best exploit its inefficiencies. Complementary Analysis As mentioned above, the best traders are those that are able to incorporate other analysis and use it in a complementary way.
There does not have to be a choice between using technical and fundamental analysis. Remember, technical analysis is not a science and is based on placing trades that are more likely to go in the direction that you predict. If you are trading based on likelihood then it can only add to the case if the fundamental also confirm that view in the medium to longer term.
You can then use technical analysis to better place time the trades in a risk-controlled manner. The same can be said for those coins that you think are likely to suffer head winds in the short to medium term. These could be prime candidates to place a short position on assuming that the levels and indicators point to a potential break lower. Cryptowatch uses sleek charts which gives users the ability to visualize price movements and market trends in real-time.
Users can also connect their portfolio to view the performance across multiple exchanges. Cryptowatch is absolutely free to use for charting, however, the premium plan includes a variety of benefits such as the ability to trade intuitively through the platform either by using your mobile phone or desktop computer by connecting up to 8 exchange simultaneously.
Note that users can trade for free through the Cryptowatch interface by connecting it to the Kraken Pro Account. This is extremely useful in case you are living in the united states since Kraken is also US Customer Friendly exchange with margin features.
BitcoinWisdom BitcoinWisdom is totally free cryptocurrency charting website, that includes all the key exchanges such as Bitmex , Deribit , Kraken , Binance and Coinbase Pro. This platform filled an important purpose back in the day by providing one of the first useable Bitcoin charts for traders. Nowadays BitcoinWisdom is still used by many OG:s and often most beginners also find themselves looking into them, and no wonder since these charts are very userfriendly and easy to use.
Start using BitcoinWisdom for free! How to analyze the cryptocurrency charts? Learning to do technical analysis on cryptocurrency charts is no one night wonder, like everything in life, it takes some work and effort to understand all tools, features, and key elements on the cryptocurrency price charts. A good example of this is how newbies often try to learn all the different indicators, completely forgetting that indicators always follow price, which is what they should be focusing on.
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