Is it possible to identify cryptocurrency market trends? Is it logical to rely on price charts of a crypto asset? Today we will see a complete guide regarding how to identify the cryptocurrency market trend.
How to Identify Cryptocurrency Market Trend?
Cryptocurrency is a digital or virtual currency that runs through a blockchain network. The cryptographic formula provides security to these assets, which doesn’t allow double-spend or counterfeit.
The cryptocurrency market is decentralized and based on blockchain technology. Cryptocurrencies are more like tokens you have to purchase with money. The first blockchain-based cryptocurrency ‘Bitcoin’ was invented back in 2009. It is also the most popular and valuable till now.
Some speculators choose cryptocurrencies because it doesn’t affect factors like macroeconomic or political, such as other currencies. By looking at the recent growth of cryptocurrencies, many investors show interest in the crypto market nowadays. Features like inflation resistance, portability, transparency, and divisibility make cryptocurrencies more attractive to investors. There are over 1600 cryptocurrencies available, and over 40 million crypto wallets created till now.
To trade cryptocurrencies, you must learn to identify the trend before investing your money. This article will discuss all the cryptocurrency market trends and the three best ways to identify the crypto market trend.
What is a Cryptocurrency Market Trend?
‘Trend’ and ‘Range’ are two most common terms in the financial market, where trend means following some specific direction (uptrend, downtrend, and sideways).
When the price remains on an uptrend, it moves by making higher highs, and if it is on a downtrend, it creates lower lows when the price shifts. Uptrend indicates the buyers’ domination on the asset price, and the downtrend indicates the sellers’ domination on the price movement.
This figure above shows the basic price movement where the higher highs and lower lows are marked. For technical analysis identifying the market, the trend is very important because trend strategies serve more profitability than many others. Trend analysis is the core of making an investment decision as if you enter a trade when the price is trending, that increases your possibility to make a profit.
Like other financial markets, the cryptocurrency market trend is also the same. You can make money from buy orders in an uptrend market (price movement). When the market is downward, you have to place sell orders to have profit.
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Anyway, there are several ways to identify the cryptocurrency market trend and discuss the best methods.
How to Identify Cryptocurrency Market Trends
In this part, we will discuss the best ways to find out cryptocurrency market trends. The price movement of cryptocurrencies is no different than other financial markets.
In an uptrend, market price moves by making higher highs and a bearish correction within a bullish move. So there is a bullish correction on a bearish move, and price makes lower lows on a downtrend market.
Identify Cryptocurrency Trends Using Ichimoku Cloud
Ichimoku Cloud is a very popular technical indicator used by traders to identify price movement tendencies. Let’s learn about the elements of the Ichimoku Cloud:
- Kumo Cloud: This area is known as the price reversal zone, a combination of Senkou Span A and Senkou Span B.
- Kijun Sen: It shows the medium-term price sentiment of the asset, which is also the average price of the last 26 candles, highs, and lows.
- TenKan Sen: This is a short-term price sentiment of the asset and made of average price movement of last nine candles highs and lows.
- Chikou Span: If the price movement is bullish, Chikou Span stays above the Kumo Cloud and vice versa for a bearish price movement of the applied asset.
For uptrend confirmation check:
- Chikou Span is above the Kumo cloud and not facing obstruction from price.
- TenKan Sen is above the Kijun Sen (indicates the price is in the short term bullish).
- The price is above the Kumo Cloud ( indicates long-term bullish).
- Check that Senkou Span A is above Senkou Span B (in the future cloud).
For downtrend confirmation check:
- Chikou Span is below the Kumo cloud and not facing obstruction from price.
- TenKan Sen is below the Kijun Sen (indicates the price is in short-term bearish).
- The price is below the Kumo Cloud ( indicates long-term bearish).
- Check that Senkou Span A stays below Senkou Span B (in the future cloud).
Identifying Cryptocurrency Trends using the Golden Cross
The cross method is a proven method to identify trends. Two different valued ( short-term, long-term) moving average indicators are required to identify trends by this method.
The best value for the moving averages would be an Exponential moving average (50) and a simple moving average (200) signal line. A golden cross happens when the short-term MA crosses above the long-term MA line like the fig above.
When the short-term moving average line crosses below the long-term moving average line, a death cross indicates the price movement is downward for the asset.
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Identifying Cryptocurrency Trends Using Multi-Timeframe Analysis
Multi-timeframe analysis is very popular among smart investors. Not just cryptocurrencies, you can easily sort out the fake trend and avoid them by multi-timeframe analysis for any trading asset. This type of analysis is done in two steps. Let’s look at them.
- Identify Key Levels: First, you have to identify the key levels from the bigger charts. Key levels are those levels where the price starts a new trend. We expect the price to rebound at the key levels. On the other hand, when the key level is broken, you can expect the trend to expand furthermore. When the price moves above the key support level, you can buy and sell when the price starts to move below the key resistance level.
- Identify short-term event levels: In the next step, identify the near-term event levels from the lower time frame charts, match the data with the higher timeframes charts, and place suitable orders.
Fig shows how the price continues to fall by making event levels (4-hour charts) after facing key resistance on the daily chart.
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Conclusion: How to Make Trading Decisions based on Trends
Finally, identifying trends is not all for crypto trading. You can easily make money from crypto trading by identifying trends, but you must have a sustainable trading strategy and proper trade management to be a profitable crypto trader.
However, after following all trading rules, some risks are unavoidable. So you must know your entry, exit, stop loss, etc., trade management data before entering a trade. Knowledge, skill, and experience can easily make you a successful crypto trader.
