Technical analysis (TA) has been a topic of debate in the finance industry for years. Some believe it to be a valuable tool for predicting market trends, while others dismiss it as nothing more than lines on a screen. However, for those who understand its value, TA can be a crucial part of their investment strategy.
In traditional finance (TradFi), fundamental analysis has always taken precedence over technical analysis. This is due to the abundance of publicly available data on revenue, debt, managerial statements, etc. However, in the world of cryptocurrencies, fundamental data is not as prevalent. This is where TA comes in. It provides a graphical representation of investor behavior, with certain patterns and indicators providing clues about what’s coming next.
TA encompasses a wide range of topics that goes well beyond looking at lines on a chart and subjective judgments. It involves using hard numbers when making a decision, such as an asset’s proximity to its 200-day moving average or its breach of the upper range of its Bollinger Band. Additionally, TA allows investors to measure an asset’s volatility using the Average True Range (ATR) metric and compare one asset to another by looking at their returns and standard deviation of returns.
One of the key benefits of TA is that it helps investors answer the question, “What if I’m completely wrong?” It allows them to make emotionless decisions about when to exit a position. For instance, if an asset’s price drops significantly, an investor might do the contrarian move and buy more. However, TA can act as a reality check and help investors decide when it’s time to cut their losses and move on.
In the world of cryptocurrencies, where there is no CEO or balance sheet, TA can be even more valuable. It allows investors to ignore the noise and verbal sales pitches that may come along with an asset and focus solely on the data. This is especially important as key crypto figures run into trouble this year.
While TA may not be for everyone, it’s difficult to ignore price and the market’s overall reaction to it. In crypto markets, that will always be worth looking at.
In other news, Ethereum is set to undergo another big software upgrade, which could have a significant impact on the market. Bitcoin has been on a tear this year, nearly doubling in price since New Year’s Eve, despite a wave of challenges such as key industry figures being accused of wrongdoing and an intensification of crypto regulation. Tyler and Cameron Winklevoss recently loaned their crypto platform, Gemini, $100 million, which is the same amount pledged to their Earn customers whose investments were frozen when Genesis stopped withdrawals late last year.
In conclusion, TA may not be the end-all-be-all of investment strategies, but it can be a valuable tool for investors looking to make informed decisions based on data rather than emotions. As the crypto market continues to evolve, it’s worth considering incorporating TA into your investment strategy.