Does Technical Analysis Work for Cryptocurrencies?
If you want to figure out how much an asset will be worth in the near future, you can use technical analysis (TA). This is one of the most common ways to figure that out. It helps you think about how market conditions will affect an asset, making it essential for traders and investors. TA tells you how to buy or sell an asset at the right price, how long you should hold it if you’re a trader, how much risk you’re taking, and how much money you’re likely to make. Let’s discuss in detail about technical analysis of cryptocurrency for future trading.
Understand these factors
Before proceeding, it is critical to establish expectations for what TA can and cannot give when implemented to crypto assets. To begin, TA is often used to find short-term trading opportunities (typically two weeks to one month). But, TA does not provide prospects for long-term investments. On the other hand, you may use TA to determine entry and exit points (prices at which you purchase and sell) for any sort of investment.
Second, every transaction involves some level of risk. TA is a guideline, not a set of rules. Under certain external factors, strategies may backfire. Therefore, if you are a frequent trader, it is critical to constantly have a plan to limit losses rather than wait for an asset price rebound. Experiencing traders should also follow this advice.
Third, short-term trades are more prone to provide modest profits. Consequently, anticipating massive gains in a short amount of time may end in disappointment and a catastrophic transaction in the worst-case scenario. To conclude, TA is most effective when employed to generate reasonable returns over a short period of time.