Over the course of the last three years, the Bitcoin popularity has only continued to grow. Today, the cryptocurrency exchange rate along with the exchange rate of the fiat currencies sparks interest not just among traders but also ordinary people who have never traded before.
Digital currencies caused a stir back in 2017 when the Bitcoin price increased about twentyfold within a few months. At the time, the prospects of cryptocurrencies were still seen as unclear and doubtful. Today, however, hardly anybody would question this asset and its worth.
The market of digital tokens attracts both experienced traders, who are keeping track of the cryptocurrency exchange rate online, and newbies who are only thinking about making money in this sector. In today’s article, we are going to learn about the ways to earn profit with cryptocurrencies by analyzing the charts.
1. Cryptocurrency exchange rates: How to analyze them right
2. Technical analysis of the cryptocurrency market: Here’s what to know
3. Best cryptocurrency trading strategy
Cryptocurrency exchange rates: How to analyze them right
To make a forecast for a particular trading instrument in the financial markets, traders use several methods of analysis, the most popular ones being fundamental and technical analysis.
Fundamental analysis implies investigation of the causes of price changes and the factors contributing to it. E.g. The monetary policy of central banks has a major impact on the exchange rate of fiat currencies. In contrast, the industry climate, the company's product, demand for it, among other things, can affect the price of stocks. These factors and their influence have been well researched. Plus, the markets where this type of analysis is applied are not new.
Meanwhile, the cryptocurrency is still a relatively young asset. It is too early to make any substantial conclusions about the factors affecting the change in the price of digital coins. So, for now, it makes no sense to use the fundamental analysis to predict the exchange rate of cryptocurrencies online.
What we have left to work with is the technical analysis of cryptocurrencies i.e. the analysis of the price chart. Today, there is plenty of information that you can get from the charts of digital coins to make high-probability forecasts and trade based thereon.
Technical analysis of the cryptocurrency market: Here’s what to know
Before we delve into the cryptocurrency exchange rate, it is worth mentioning that the most popular digital coins are available for trading in the trading terminals of the Forex brokers.
If you are a newbie or just dipping your toes into trading in the financial markets, we recommend to start out with the MetaTrader4 trading terminal. Aside from cryptocurrencies, also make sure to check out fiat currencies, as well as CFDs on stocks and commodities.
With broker Gerchik & Co, you can track the exchange rate of Bitcoin (BTCUSD), Ethereum (ETHUSD), Ripple (XRPUSD), and Litecoin (LTCUSD). These coins are included in the list of the most popular cryptocurrency assets, so we will give them careful consideration below.
Cryptocurrency exchange rate online: Correlation
If you take a look at the charts of Bitcoin (BTC/USD), Ethereum (ETH/USD), Ripple (XRP/USD) and Litecoin (LTC/USD) cryptocurrency pairs, you will see that visually they are hardly different. They look almost identical. Only the prices are not the same. This is called correlation.
Bitcoin was the first digital coin to see the light of day, which is why it is referred to as the main cryptocurrency. As an alternative to Bitcoin, many other cryptocurrencies have been created. Major altcoins are Ethereum, Ripple and Litecoin.
That being said, Bitcoin remains the main digital currency in the market, and the exchange rate of altcoins changes the same way as the BTC/USD rate does.
This is why Bitcoin plays the role of the market guide, if you will. If its price rises, altcoins go up in value too, and vice versa - whenever Bitcoin falls, so do the altcoins. Cryptocurrency correlation is the first thing you need to factor in when analyzing the charts of cryptocurrency exchange rate online.
Levels in the cryptocurrency market
Since we have already established what correlation is, we can now proceed to analyzing cryptocurrency charts. Let’s use the Bitcoin chart as an example.
Trading strategy using support and resistance levels is among the most popular technical analysis strategies. After three and a half years, enough history has been accumulated on cryptocurrency charts to draw price levels correctly and make a forecast.
The rule of thumb here is this:
The price moves from one strong level to another.
What this means is that the accuracy of the forecast will largely depend on whether you have correctly identified and drawn price levels on the chart.
Below are the key principles that will help you to avoid mistakes:
- When doing an analysis, go from the higher timeframe to the lower one. First, make sure to mark the levels on a monthly, weekly, and daily chart, gradually moving to the timeframe you are working with (e.g. H1).
- The level formed on the higher timeframe is considered to be the stronger one.
- After determining the levels, use the rebound and breakout trading strategies.
If you take a look at the 4H Bitcoin chart, you will see that the price moves from level to level, going from one horizontal range to another.
Watch the video below to learn how the levels work
You can also use the principles of candlestick analysis when keeping an eye on the exchange rate of cryptocurrencies online. You can use both price action patterns and trade according to their signals, or couple your basic trading strategy with candlestick analysis.
By trading levels, you’ll be able to easily spot the emergence of popular candlestick patterns on the chart. The chart below demonstrates that the bearish absorption patterns formed near the resistance signal a local price reversal. This means that the level won’t be broken out. So, in this sideways trend, you should opt for a rebound trading strategy and go short.
Best cryptocurrency trading strategy
If you have previous experience of trading fiat currencies or stocks and have already worked out your own strategy, it is worth testing it out using cryptocurrencies, the exchange rates of which you can see in your trading terminal. As we all know, the best trading strategy is the one that you know like the back of your hand.
As can be seen from the above examples, the level trading strategy, which has proven to be effective in the stock, commodity and Forex markets, is suitable for cryptocurrency as well.
Once you test out your favorite strategy with Bitcoin or altcoins and see that it works, don’t hesitate to use it, since technical analysis remains to be the best option when it comes to making forecasts for the cryptocurrency exchange rate online.
What to know:
Do you wish to sell or buy digital tokens profitably?
Read, how to trade cryptocurrency profitably!