Digital currencies gained popularity in 2017 when the price of bitcoin increased almost twentyfold in just a few months. Now no one has any questions about the prospects of this asset.
The market of virtual currencies attracts experienced traders who track the rate of cryptocurrencies online. Also, digital currencies are of interest to newcomers looking at the opportunity to make money in this sphere. Plus, today, there are platforms where you can exchange even Alpha Finance to yearn.finance. Now we will learn how to make profits on cryptocurrencies by analyzing the charts.
Cryptocurrency rate: how to analyze correctly
To predict in the financial markets with the help of trading tools, you need to use analysis methods. The most popular ones are fundamental and technical.
Fundamental analysis studies the causes of cryptocurrency prices and the factors that affect them. For example, central banks' monetary policy influences the price of fiat currencies, the situation in the industry, the company's product, the demand for it, etc. These factors and their influence are well studied. The markets where this type of analysis is applied are already quite «mature».
Cryptocurrency is a «young» asset. It is too early to make conclusions about systemic factors that influence price changes. That's why fundamental analysis is not relevant for rate prediction yet.
There is technical analysis, the analysis of the graphic display of price. There is enough information nowadays to make forecasts with high probability and make profitable deals.
Cryptocurrency exchange rates online: correlation
If you look at the charts of the pairs Bitcoin (BTC/USD), Ethereum (ETH/USD), Ripple (XRP/USD), and Litecoin (LTC/USD), you can see that visually they are almost identical. Only the prices differ. This is called correlation.
The first digital coin was bitcoin, so it is often called the main cryptocurrency. There are also other cryptocurrencies called altcoins — Ethereum, Ripple, Litecoin, etc. That said, bitcoin remains the main digital currency on the market for now.
If its price goes up, the value of altcoins goes up. If Bitcoin falls, altcoins become cheaper. Cryptocurrency correlation is the first thing to consider when analyzing charts.
Levels in the cryptocurrency market
One of the most popular technical analysis strategies is trading by support and resistance levels. There is already enough history on cryptocurrency charts in three and a half years to correctly set price levels and make predictions.
The main rule to keep in mind here: price moves from one strong level to another. The accuracy of the forecast will depend on how correctly the levels are defined and marked. Use a toolkit
The principles of candlestick analysis can also be used when tracking cryptocurrency rates online. You can use both Price Action models and trade on their signals, or you can supplement your basic trading strategy with candlestick analysis.
The best strategy for trading cryptocurrencies
Do you have experience in trading fiat currencies or stocks? Have you already formed your strategy? It's worth testing it on cryptocurrency. If you see that your favorite strategy works after testing it on bitcoin or altcoins, then go ahead and apply it. Technical analysis is still the most appropriate way to predict cryptocurrency rates.