Technical Analysis Overview of Password Asset Trading: From Beginner to Expert

Want to profit in the cryptocurrency market? Then you need to understand technical analysis. This is not an option but a mandatory course.

Currently, Bitcoin price has reached $89K, and market volatility is intense. In such an environment, relying solely on intuition and luck is not enough. Every trading decision must be based on a deep understanding of the market. Technical analysis of cryptocurrency is the core tool that helps traders understand the market, predict trends, and find the optimal entry points.

Why do traders need technical analysis?

Making money requires a methodology. In the cryptocurrency market, this methodology includes three key elements:

• Accurate entry price - When is the best time to buy?
• Clear profit expectations - What is the target price?
• Reasonable holding period - How long to reach the goal?

The answers to these questions are hidden in historical price data and market behavior. Therefore, combining technical analysis with fundamental analysis can build a comprehensive investment research framework.

Fundamental analysts study macroeconomic trends, industry competition, and project valuation; while technical analysts predict future price movements by studying historical prices, trading volume, and market sentiment. For newcomers to crypto assets, mastering technical analysis is a crucial way to significantly improve trading success rates.

The core logic of technical analysis

Technical analysis of cryptocurrency is based on a simple but powerful assumption: the market is predictable, and established trends tend to continue.

Prices do not fluctuate without reason. Every rise or fall has traces in history, and traders can interpret these traces to predict the next move.

Price fluctuations in the crypto market stem from changes in supply and demand: when supply exceeds demand, prices fall; when demand exceeds supply, prices rise. Traders’ task is to accurately identify these turning points.

Here’s a reality: there is no universal technical analysis method. Different traders prefer different indicators, and interpretations of the same signals vary. Technical analysis is not a magical crystal ball; it can only make probabilistic judgments based on historical data. Fundamental analysis considers many complex factors, while technical analysis focuses on price and volume. Therefore, the most prudent approach is to combine both.

Practical tools in technical analysis

Simple Moving Average (SMA)

SMA is the most basic technical indicator. The calculation is straightforward: add up several prices and divide by the number of periods. For example, if the prices over three days are 1, 2, 3, then the average is (1+2+3) ÷ 3 = 2.

The reason it’s called “moving” average is that it updates continuously with new prices, forming a flowing curve on the chart. This line effectively filters out price noise and helps traders identify the true trend direction.

Exponential Moving Average (EMA)

EMA is an upgraded version of SMA. Unlike SMA which treats all historical prices equally, EMA places more emphasis on recent data. This allows EMA to respond more quickly to market changes.

Practical uses of EMA:

• When the price touches or crosses above an upward EMA, consider buying
• When the price falls below EMA, consider selling
• Rising EMA acts as support; falling EMA acts as resistance

EMA performs best in trending markets. When the price of a crypto asset runs above EMA, it indicates an uptrend; conversely, a downtrend. Note that EMA is a lagging indicator, so entry and exit signals may have a time delay.

Relative Strength Index (RSI)

RSI belongs to the oscillators family, with values ranging from 0 to 100. It calculates the magnitude and speed of price changes to determine if an asset is overbought or oversold.

Due to the high volatility of crypto markets, RSI helps traders pinpoint precise entry and exit points, making it a reliable tool for crypto traders.

Stochastic RSI

Some traders further optimize by using stochastic RSI to deepen market sensitivity analysis. This indicator applies the stochastic oscillator formula to the standard RSI, also fluctuating within 0-100, providing more detailed market interpretation.

Moving Average Convergence Divergence (MACD)

MACD is composed of the difference between two EMAs, forming the main line (MACD line), plus a signal line (EMA). Additionally, a histogram shows the difference between the two lines.

Calculation formula: MACD = 12-period EMA - 26-period EMA

MACD trading signals:

• When MACD crosses above zero, it’s a bullish signal
• When MACD crosses below zero, it’s a bearish signal

Bollinger Bands

Bollinger Bands consist of three lines: the middle line is an SMA, and the upper and lower lines vary based on price volatility. This indicator can identify overbought/oversold conditions and measure volatility.

Bollinger Bands are often used to determine current trends, assess volatility, and predict potential reversal points.

Price Action Trading

Unlike relying on indicators, price action traders only look at the chart itself. They analyze price fluctuations and volume patterns without auxiliary tools.

Price is the essence of trading. Traders need to identify trend waves and retracement waves (also called impulsive and corrective waves). When the trend wave is larger than the retracement wave, the trend is established. By observing local highs and lows, traders can determine an uptrend (higher highs and higher lows) or a downtrend (the opposite).

Candlestick Chart Analysis

Candlestick charts, invented by Japanese rice traders in the 17th century, are excellent tools for understanding market movements. Each candlestick contains four key pieces of information:

• Body - the range from open to close
• Wicks - the highest and lowest prices during the day
• Color - green (or white) indicates an upward move; red (or black) indicates a decline

Patterns formed by candlesticks often signal buy or sell opportunities: some reflect supply and demand balance, others indicate trend continuation or market hesitation.

Pivot Points

Professional crypto traders use pivot points to identify support and resistance levels. Pivot points are areas where the price may change direction.

The advantage of pivot points is objectivity. Unlike other indicators that require subjective judgment, pivot points are calculated using mathematical formulas, providing clear results. Traders in exchanges first used these tools to predict support/resistance levels in stocks and commodities markets.

The five-level pivot system is based on the previous trading day’s high, low, and close:

• P = (Previous high + previous low + previous close) ÷ 3
• S1 = (Pivot point × 2) - previous high
• S2 = Pivot point - (Previous high - previous low)
• R1 = (Pivot point × 2) - previous low
• R2 = Pivot point + (Previous high - previous low)

Fibonacci Retracement

Fibonacci sequence (0, 1, 2, 3, 5, 8… each number approximately 1.618 times the previous) is widely used in technical analysis. Traders use Fibonacci retracement levels (23.6%, 38.2%, 50%, 61.8%) to identify potential support and resistance levels.

Crypto markets do not move in straight lines; retracements or corrections often occur. Fibonacci retracement helps traders judge how far the market might pull back. This indicator is best used in conjunction with MACD, trendlines, moving averages, and volume—more confirmation signals increase trading confidence.

Practical advice and risk warning

The ultimate goal of technical analysis is to predict price trends and future market movements. The good news is that financial tools often repeat their historical price patterns. But the reality is, technical analysis is not perfect; it cannot guarantee 100% accurate signals.

Professional traders continuously evaluate the weaknesses of each signal and prioritize risk management. They understand the movement logic of digital assets like Bitcoin and establish comprehensive position management systems.

Mastering technical analysis takes time and practice. Once mastered, it can provide stable profit opportunities. Although controversial, combining technical analysis of cryptocurrency with fundamental analysis—long-term fundamentals, short-term technicals—is the most prudent approach.

Fundamental analysis is suitable for long-term investment strategies, but technical analysis can provide important insights into short-term market movements, especially when identifying optimal entry and exit points. For traders and investors, this combined approach offers greater practical value.