Technical Analysis

References:
1. https://coinmarketcap.com/alexandria/article/technical-analysis-101-the-best-technical-indicators-for-crypto-and-stocks
2. https://cointelegraph.com/learn/crypto-charts-101-how-to-read-cryptocurrency-charts
3. https://phemex.com/academy/understanding-candlesticks-patterns
4. https://www.bcbgroup.com/cryptocurrency-candlesticks/
Technical Analysis
• Studying market action, primarily
through the use of charts - the
behaviour of the crypto asset to
determine its future price –a
supplement to Fundamental
• Science of recording, usually in graphic
form, the actual history of trading; then
deducing from that pictured history the
probable future trend
• Often criticized for the use of past
information as a basis for forecasting
future price action, relying on the
notion that certain price behaviors tend
to repeat
• Based on three assumptions:
1. Market discounts everything:
• market action (price action), reflects all known
information in the markets - Efficient Market
Hypothesis - M V of any Cryptocurrency is
determined based on interaction of demand &
supply
2. Prices move in trend:
• except for minor deviations, prices of crypto
assets move in trend – (increase or decrease) –
continues for some time & then reverse
3. History tends to repeat itself (in terms of
price movement):
• past prices predict the future – technicians
believe that market trends & patterns repeat
themselves - predictable as human behaviour
tends to repeat itself & is somewhat predictable
Dow Theory of Technical Analysis
•Dow Theory - originated by Charles Dow, the founder
of Dow Jones Company in late nineteenth century -
helpful tool for determining the relative strength of the
crypto market
•Market Trends:
•(i) Primary trend (tide): broad upward/ downward
movements may last for a year or two – may be
interrupted by intermediate trend
• lasts from one year to 36 months or longer - can either
be a bull market or a bear market
•(ii) Intermediate trends (wave): corrective movements
may last for three weeks to three months & is opposite
in direction
• can be pullbacks in bull markets, where asset prices
temporarily move back, or rallies in bear markets, where
prices temporarily move up before continuing their
downtrend
• lasts from two weeks to a month or more
•(iii) Tertiary trend (ripples): day-to-day price
movements referred to as oscillations or fluctuations
• To be carefully studied, along with primary & secondary https://cointelegraph.com/learn/crypto-charts-101-how-to-read-cryptocurrency-
movements, as they go to make up the longer movement charts
in the market
Primary Movements
• The Crypto Price may be increasing or decreasing - market exhibits the increasing trend in Bull
market, decreasing trend in Bear market
• The Secondary or intermediate trend moves against the main trend & leads to correction
• Minor trends are Simply the Price corrections ,based on daily fluctuations

https://mytradingskills.com/what-are-bullish-bearish-markets
 Type Of Charts: (i) Line Chart
• Basic of the charts - represents the closing prices over a set period - considered
important as closing prices incorporate all available information of the crypto asset - to
identify the trend, a series of closing prices is plotted on a chart & joined to form a line

Source: https://in.tradingview.com/symbols/BTCUSD/ideas/

https://www.investing.com/crypto/bitcoin/chart
(ii) Bar Chart
• Made up of series of vertical lines that represent each data point - the vertical Lines represent the
high-low & closing price of the crypto asset - often called as OHLC - are used for every bar that is
plotted on a chart
• Opening & Closing prices are indicated by dash - Opening Price is on the left side , Closing Price
is on the right side

Source: https://www.investopedia.com/charts-for-crypto-
6500665
 (iii) Candle Stick Chart
Munehisa Homma is the originator - first
• A Candle stick has three parts & four different data points
used by rice merchants in Japan in 1700s -
1. Upper Wick or Shadow indicates the high trading session - if longer, introduced to the West by Steven Nison in
the asset price surpasses the open & close price - a shorter one his book ‘Japanese Candlestick Charting
reflects asset trading close to its opening & closing price Techniques’
2. Real Body gauges the opening & closing price - if it is red or black,
then the closing price is low - on the contrary, a hollow green or white
candle represents a high closing price
3. Lower Shadow depicts the low trading session - if the lower shadow is
long, then the asset price is on the lower side - a short lower shadow
depicts asset prices that trade close to a low open or close point
• Four data points:
i. Open is the price at which the asset trades at the beginning of the
intraday
ii. High - top of the upper wick represents the high price point of an
asset - if the asset opens or closes at its highest price, an upper
shadow is not formed
iii. Low - bottom of the lower shadow reflects the low price point of an
asset - if the price opens or closes at its lowest, the lower shadow is
absent
iv. Close - closing price at which last trade is made at the end of the Source: https://www.wallstreetmojo.com/candlestick/
intraday
Candle Stick Patterns
Pattern recognition is used to forecast trends, price direction, & general momentum
- Important bullish & bearish patterns are:

• Bullish Pattern: • Bearish Pattern:

• The Hammer • The Hanging Man
• The Morning Star • The Shooting Star
• The Bullish Engulfing • The Bearish Engulfing
 Candle Stick Patterns: The Hammer vs The Hanging Man
Source: https://phemex.com/academy/understanding-candlesticks-patterns

• The bottom of the downtrend has a long lower wick,

just like a regular hammer - the body is often small, &
it may have little or no upper wick - can either be
green or red
• Depending on the situation - indicates a prospective
price increase or a strong reversal trend
• Image above shows that after a period of high selling
pressure, a bottom was hit
• Subsequently, buyers began gaining momentum, hence
the long lower wick - once the Hammer was formed,
the trend was reversed, and prices began to increase
• This pattern is considered the bearish
alternative of a hammer
• Typically, it is created at the end of an
uptrend with a long lower wick and small
body. It can be red or green
• This pattern reveals that the uptrend has
weakened, and traders consider it a sell
signal
Candle Stick Patterns: The Bullish Engulfing vs The Bearish Engulfing
Source: https://phemex.com/academy/understanding-candlesticks-patterns
• Two candlesticks form this pattern at the end of a
downtrend i.e. 1st red (bearish), & 2nd green
(bullish) - the body of the second candle is large
enough to fully engulf the previous candle
• There should be a small gap between the opening
& closing price of both candles - in most cases,
these gaps are not often seen in cryptocurrency
markets
• Pattern reveals that buying pressure has
significantly increased and overpowers selling
pressure
• Bearish engulfing is formed by two
candlesticks. 1st green (bullish),& 2nd(bearish)
and 2nd one is big enough to engulf the former
• There is also a gap between the opening and
closing prices of each candle -this pattern
occurs at the top of an uptrend - not often seen
in cryptocurrency markets
• Pattern reveals that selling pressure has
increased & signifies the start of a possible
downtrend
Candle Stick Patterns: The Morning Star vs The Shooting Star
Source: https://phemex.com/academy/understanding-candlesticks-patterns

• Consists of three candlesticks, & each of these

candlesticks can be of different durations ranging
from a few minutes to a day - the middle • When it comes to intraday trading, the shooting
candlestick forming a star star is one of the most effective candlestick
patterns
• A downtrend must be in place since a morning star
is a bullish reversal pattern • Pattern is composed of one candlestick with a very
small lower wick & slim body while the upper
• First candle should be a bearish candle, preferably a
wick is quite long - this pattern occurs at the peak
longer
of an uptrend
• Second candle should be indecisive as the bulls and
• This shooting start denotes a price rejection
bears start to balance out over the session
immediately after a substantial rise - pattern is a
• ​Third candle should be a strong bullish candle, sign of a bearish reversal
which practically all but confirms the reversal
Doji Candle
• In some cases, one single candle can offer a great
glimpse at the market - Doji candles
• Indicates an equal number of buying & selling
pressure –composing a cross-shape or a plus sign -
the body is absent or nearly negligible & the shadow
is greater
• Pattern generally forms when the market opens with
bullish trends that drive the price up - there is
counter-pressure from the bears who bring the price
down by rejecting the higher price
• Three different categories:
1. Long-Legged: with the upper & lower wick
roughly equally long, which indicates that the
market is experiencing a lot of uncertainty
2. Gravestone - has a big top wick and expresses that
a high price was rejected & emotions toward the
asset were negative during the session https://www.bcbgroup.com/cryptocurrency-candlesticks/
3. Dragonfly - a sign of a session-long bear run that
ended with a comeback to the starting price
A Candlestick Chart of Ethereum Trading

https://in.tradingview.com/symbols/BTCUSD/
Candlestick Chart Trends

• The trends usually are represented by the ups and downs of an asset’s price on the candlestick
chart - the high & low points of several small trends are grouped to form a more significant trend
1. Upward Trends - appears when a chart has new low points higher than the previous low while
the new high points are higher than previous high points - during an upward trend, traders are
confident to trade, & the market generally remains bullish
2. Downward Trends - refers to a chart with new high points lower than previous high points and
new low points also lower than previous low points
3. Consolidation Trends - prices in this trend do not go in one direction consistently - switch
between high & low(high & low points are relatively close)
• Timeframes: A crypto candle can be formed within a range of various timeframes, with the one-
day frame is the most common - each candle depicts a daily price action of the asset every 24
hours
• Some traders advocate shorter timeframes (minutes or hours instead of days) to locate a trend -
reason is that using a shorter timeframe is similar to zooming in on a graph to find smaller points
- however, longer timeframes reveal daily price directions while trading certain cryptocurrencies
General Chart Patterns
• Chart patterns are important for both beginners and professionals
when looking for market trends and predicting movements - can be
applied to any market, including forex, stocks, commodities, and
crypto currencies
• Important chart patterns
a) Support and resistance
b) Double Bottom/Double Top
c) Head and Shoulders
 Support & Resistance Level

• Support: when level of demand rises to match the

supply of a currency, the price moves in a downward
trend & will stop falling - support level & is tested
several times by traders
• If support level does not break after tests - traders
enter long trades
• Sometimes support level gets breached - prices move
lower &continue - until a new support level is found
– the prior support level often becomes a new
resistance level
• Resistance: in an uptrend, prices rise to a level where
demand no longer outpaces supply – at this level,
supply is more than demand - creating a ceiling over
prices
• Such levels get tested multiple times - traders are now
more comfortable shorting the cryptocurrency
• Sometimes, prices may break through resistance &
continue higher - until they find a new level of https://www.investopedia.com/charts-for-crypto-6500665
resistance - the old resistance level becomes new
support level
Bitcoin Daily Chart with Support & Resistance Levels
Double Tops and Bottoms

• A double top formation is simply a retest of a prior resistance level and a double
bottom is a retest of a prior support level - a double top is a bearish reversal
formation, whereas a double bottom is a bullish reversal formation
• A double top/ Double Bottom is a Variation of Support and Resistance levels
Solana One Hour Chart

Source: https://www.investing.com/crypto/Solana/chart
 Head and Shoulders (H&S)

• H&S top formation is characterized by a peak representing the left shoulder, followed
by a higher peak as the head – a lower peak representing the right shoulder is found on
the right‐hand side of the head - head should be the highest peak in the formation
• Neckline is a trend line that connects the troughs that lie on either side of the head -
may be horizontal or inclined - a complex head & shoulders formation consists of
multiple left and right shoulders
• It is a variation of Support and Resistance level
BTC/USD One day Chart – Head and Shoulder Pattern

Source: https://www.investing.com/crypto/bitcoin/chart
Different types of Indicators & Oscillators
• Indicators are used to indicate the potential direction of the trend - useful tools in
technical analysis as they give an idea about the potential direction of the trend
a) Moving Averages

• An oscillator constructs high & low bands between two extreme values, and then
builds a trend indicator that fluctuates within these bounds - traders use the trend
indicator to discover short-term overbought or oversold positions
• a)Relative Strength Index
• b) Bollinger Bands
• c) Moving Average Convergence & Divergence
Moving Average Indicator
• A lagging indicator as it is based on past cryptocurrency prices - is used to identify
the direction of the trend and determine the support & resistance levels - two
types:(1) the simple moving average (SMA) & (ii)the exponential moving average
(EMA)
• Lagging indicator – a smoothing device – filters out random noise & offers a
smoother perspective of the price action - the word ‘moving’ indicates that new
data needs to be included on the information of the past data points
• Moving Average curve is compared with the index line (Asset price line) to
identify buy or sell signals with two basic rules:
1. When market price(MP) line cuts the moving average(MA) line from
below, it is a buy signal;
2. If MP line cuts the MA line from above, it implies that bearish trend will
soon set in – to be regarded as a ‘sell’ signal
• The 200day moving average is one of the most reliable& easily understandable
technical indicator available to analysts
Moving Average Indicator……….
(Source: https://www.investing.com/crypto/bitcoin/chart)

• Simple Moving Average (SMA) - if

we look at a daily Bitcoin chart with a
daily moving average of 1 periods
applied, we will see what the average
price was over the last 9 periods -
calculate the average candle closing
prices of the last 9 days
• This average value is represented as a
line that moves each day, since each
day’s SMA will use the last 9 days
including the one it’s on, thereby
making it a “moving” average
Moving Average Indicator……….
(Source: https://www.investing.com/crypto/bitcoin/chart)

• Exponential Moving Average (EMA): is a

weighted moving average - recent prices are
given more weightage than older prices, as the
prediction levels are more accurate than SMA
• E (exponent) = 2/(n+1) , where n is the period
• EMA = Previous day EMA + [Closing Price–
Previous day EMA] x Exponent
• For the initial day, one can consider SMA as the
Previous day EMA
• Conditions:
1. If the price stays above Moving Average
Line, then market indicates bullish sentiment
– one may look for long positions
2. If the price stays below Moving Average Line
, then market indicates bearish sentiment,
investor may look for short positions
Exponential Moving Average
• E ( exponent) = 2/ (n+1 ) , where n is
Date Closing prices EMA the period
18-03-2023 26965.88
• EMA = Previous day EMA +(Closing
19-03-2023 28038.68
Price – Previous day EMA) x
20-03-2023 27767.24 (SMA) 27590.6 Exponent
21-03-2023 28175.82 27883.21
22-03-2023 27307.44 27595.32
• Exponent = 2/3+1 = 0.5
• EMA for 4th day = 27590.6 +
23-03-2023 28333.97 27964.65
(28175.82 – 27590.6)*0.5 = 27883.21
24-03-2023 27493.29 27728.97 • EMA for 5th day = 27883.21 +
25-03-2023 27494.71 27611.84 (27307.44 – 27883.21)*0.5 = 27592.32
26-03-2023 27994.33 27803.08
Moving Average of Bitcoin
(Source: https://www.investing.com/crypto/bitcoin/chart)
 Relative Strength Index ( RSI)
• RSI indicator is a momentum oscillator - created by J.
Welles Wilder in 1978 - effective in showing if a market is
overbought or oversold
• The RSI index measures momentum and oscillates on a
scale between 0 & 100 - calculation is based on the most
recent 14 periods & one candle represents one period
• Computation of current RSI:
1. The average periodic gain or loss for a specific interval is Green indicates Buy, & red indicates Sell
derived and decimalized: RSI = 100 – [100/(1+ Average Source: https://haruinvest.com/blog/rsi-crypto-trading/
Gain/Average Loss)]
2. A select number of periods is defined to aggregate the
data set - a base value of 14 periods is used: RSI = 100 – •RSI may be applied to any coin offering on
[100/(1 + ((Previous Average Gain *13) +Current Gain)/- any timeframe
((Previous Average Loss * 13) + Current Loss))] •Can be used for trade reversals, range-
• Interpretation: bound markets, or enter trending markets on
• 0-30: market is trending lower & is oversold -time to buy price retracements
• 30-70: market is neutral & trading sideways - best to wait
or employ a range-trading strategy
• 70-100: market is trending higher & is overbought - time to
sell
Bitcoin Daily Chart – RSI Analysis
(Source: https://www.investing.com/crypto/bitcoin/chart)
Bollinger Bands
• The Bollinger Bands (BB) were created in the
early 1980s by an oscillator measurer & trader
John Bollinger - indicates overbought or
oversold conditions & assess whether the
market has high or low volatility
• The standard formula sets the middle line as a
20-day simple moving average (SMA) while
the upper and lower bands are calculated based
on the market volatility in relation to the SMA
(which is referred to as standard deviation)
• The standard settings for the Bollinger Bands
indicator would look like this:
i. Middle line: 20-day SMA
ii. Upper band: 20-day SMA + (20-day SD x2)
iii. Lower band: 20-day SMA - (20-day SD x2)
Bitcoin Monthly Chart – Bollinger bands

https://www.investing.com/crypto/bitcoin/chart
Moving Average Convergence Divergence ( MACD)

• The MACD is created by de-trending two moving averages with each other &
plotting the difference as a window oscillator - (de-trending removes the trend
component, leaving only the difference in values)
• In case of MACD, de-trending is simply the subtraction of the values of the 26‐
period exponential moving average from the 12‐period exponential moving
average
• When MACD crosses Signal Line from below, we enter long Position, when it
crosses Signal Line from above we enter short position
MACD BTC Daily Chart