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Cryptocurrency Trading: Why Technical Analysis is Essential

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Bitcoin technical analysis

The idea that charts can make you money has been a matter of contention for years.

Warren Buffett once remarked, “I realized technical analysis didn’t work when I turned the charts upside down and didn’t get a different answer.”

Peter Lynch observed, “Charts are great for predicting the past.”

Benjamin Graham before them famously said, “In the short term the market is a voting machine, but in the long run it is a weighing machine.”

Despite those opinions, technical analysis does work quite well

Since November 2017, Bitcoin (BTC) has consistently caught support around $6,400.

Most times, you’ll notice that the price of the coin has caught that line, but has rallied after.

But that’s just one indicator to be well aware of.  We can even watch the Bollinger Bands (2,20).  Dating back to January 2018, each time BTC has challenged the lower and upper Bands, we see a pivot in the other direction.

Interesting to note, we can confirm a likely pivot from a Bollinger Band with two other indicators

Those include Williams’ %R (W%R) and Relative Strength (RSI).  Each time W%R gets to or above is 20-line, the asset is considered overbought.  Then, when it drops to or below its 80-line, the asset is considered oversold.

RSI has similar settings.

Whenever RSI pushes to or above its 70-line, the asset is considered overbought.  When it pushes to or below the 30-line, it’s considered oversold.

When all three indicators align in overbought or oversold territory, we have confirmation. It tells us the potential for a pivot is there.  In fact, if you look at a one-year chart of Bitcoin, you can see that when all three align, the coin pivots.

As a matter of fact, it pivots up to 80% of the time.

It’s just something to be aware of when trading an asset, such as a cryptocurrency.



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