From the outside, it looks like people who conduct technical analysis on Bitcoin are magicians with PhD.’s in mathematics. It seems like they “just know stuff”.
Well, I’m here to tell you that’s nonsense.
Technical analysis on Bitcoin means to look for patterns on the price chart, and use those patterns to inform your investment decisions.
Anyone can learn how to read Bitcoin price charts and conduct bitcoin technical analysis – including you.
In this article, we’ll be looking at the absolute basics, which often times is all you need. We’ll look at the most common technical price patterns, and how to interpret them.
The tools you’ll learn today can be used on more than just Bitcoin; it can be used to invest in altcoin as well.
Also, it’s important to remember that technical analysis does not care about why the price moves, only how it moves. Fundamentals like stock to flow and network hash rate are irrelevant.
Let’s do this!
Technical Analysis Basics
When it comes to reading price charts, and technical analysis in general, the KISS principle applies:
Keep It Simple Stupid!
Do not listen to this guy:
From my point of view, and from my experience, it’s best to stick to the basics, which is exactly what you will learn today.
How to Read the Bitcoin Price Chart
Below you see the BTC / USD price chart. It shows how much USD we can get per Bitcoin, aka. the Bitcoin price.
The red and green rectangles you see stretching across the screen are called “candles” and represent price movement within a specified time period.
The green candles tell us that the price increased within the time period, the red ones tell us the opposite – that it decreased.
In this chart the time period is set to one month (1M). You can see that by checking the top left corner (I have put in a blue ring to highlight it)
To recap what you’ve learned from this image:
• The rectangles you see represent the price action within a given time period.
• Green candles tell us that the price has increased
• Red candles tell us that the price has decreased
• You can check the time period in the top left corner.
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Looking Closer at Price-Candles:
Below you see the exact same image. We are still on a monthly time frame, and it’s still the Bitcoin / USD price chart.
As you’ve now learned, the candles tell us something about how the price moved within the given time period, a month in this case.
Let’s get more specific:
Look at the two arrows on the image below. The upper one goes from the top of the red candle, the other one goes from the bottom of the same red candle:
The arrows point towards the right vertical axis. The numbers you see they’re pointing to is the Bitcoin / USD price.
The upper arrow points at the “opening price“, which is where the price is when the month began.
The lower arrow points to the “closing price“, which is the price when the month ended.
• Red candles represent months where the price has decreased. Therefore the opening price is the top of the candle, and the closing price is the bottom of the candle.
• Green candles represent price increase. Therefore the opening price is the bottom of the candle, and the closing price is the top.
If you go back up and look at the candles, you’ll notice a few thin lines sticking out above and below some of the candles.
These lines are called “wicks”.
Wicks represent price spikes or dips that happened within the month, but ended before the monthly close.
If the we start May of 2021 at $75 000, and go all the way up to $90 000, only to fall back down to $60 000 at the end of the month, how do you think the candle would look?
It would be red, with the top of the candle at $75 000 (opening price), and the bottom at $60 000(closing price).
There would also be a wick, a thin line, stretching all the way up to $90 000.
Now you know enough to start doing technical analysis on Bitcoins price chart!
Let’s recap quickly:
• The green and red rectangles tells us if the price has moved up or down within a given time period.
• The bottom/top of the green/red candle is the opening price, the top/bottom of the green/red candle is the closing price.
• If the price spikes/dips, but comes back down/up before the closing of the candle, we get a “wick”, which is a thin line stretching above/below the candle.
• You can check the time frame in the top, left corner, and the price at the right vertical axis.
Let’s move on and analyse a few charts!
Trendlines – Support and Resistance
Fundamental to any technical analysis is “Resistance” and “Support” lines (trend lines).
Trend lines tell us something about the buying/selling activity of traders at given price ranges.
They help us predict where a lot of people will sell, and push the price down, as well as where a lot of people are going to buy, and push the price upwards.
This next part is key to understanding technical analysis:
Below you see the Bitcoin / USD price chart, on a weekly time frame, with two yellow “trend lines” drawn on it.
Notice how it seems like the price was “trapped” within the two yellow lines?
Also, when the price finally broke out above the upper line, notice how it shot up like crazy?
This pattern is called a “symmetric triangle”, and is generally a bullish (optimistic) sign. Let’s go through it in detail, so that you can learn to spot them on other price charts.
The Yellow Lines (trendlines):
• The lower line is called the support line. This is the “price floor” where we bounce back up, or at least don’t fall below.
• The upper line is called the resistance line. This acts as a roof, where the price is pushed back down whenever it nears it.
The Red Ring (breakout):
I’ve highlighted something with a red ring, something extremely important – previous resistance turned into support.
We finally broke above the resistance line, and “successfully tested it as support”, meaning that we fell back down to the line, but bounced back up (like you see in the red ring above).
Think of it as turning the previous resistance into a spring board for further growth.
When you see stuff like that, previous resistance turned into support, it’s time to buy.
If we do the opposite – break down below the support, and turn the previous support line into resistance – run for your life!
This is bearish (pessimistic), and tells us that we are going further down.
Below you see a drawing of how the bearish scenario would play out:
What you need to remember:
• Turning previous resistance into support = bullish (buy signal)
• Turning previous support into resistance = bearish (sell signal)
Technical Patterns to Look For:
There are many patterns to look for when conducting technical analysis on the Bitcoin chart. However, some are more important than others.
Below you see of some of the most common and useful patterns:
The three upper patterns are “bullish” (optimistic), and the three lower ones are bearish (pessimistic).
“Call” means to buy, and “Put” means to short.
Personally, I would never dare to short Bitcoin. However, some traders choose to do this whenever they see patterns like the ones above.
Let’s take a look at some “real-world” examples of Bitcoin technical analysis, and how to trade them:
Examples of Bitcoin Technical Analysis
In the image below you see three “channels”, which are parallel resistance and support lines, showing the general trends:
The blue lines show the up-trends, the red lines show the downtrend and the green line represents something we call a “double bottom“.
A double bottom is bullish (optimistic), and signals a “trend-shift”.
This is how to interpret the chart above:
We trended down in the red channel, saw a double bottom (trend shift), then started trending upwards.
How to Use Channels When Investing:
A great way to use channels is to “dollar cost average” in whenever we are near the bottom of the channel.
You can also invest a larger sum whenever you spot a double bottom, signaling a trend shift.
This is a great way to make sure you get a low average buy-price:
Start investing when you spot the trend shift, and regularly invest when the price approaches the lower line of the trend channel.
The red rings in the image below shows where I would buy, using trend channels:
Channel Combined With Support-Lines
I have highlighted the buy-zones with a green highlighter:
Take notice of the last buy-zone. We hit a “double-support” – meaning that both the channel and the previous high (yellow line) acted as support. This is a great sign for the bulls, and a clear buy sign.
Head and shoulders Pattern
This is a scary one. If you see this pattern, it’s a clear sell sign.
Once you see the price dip below “the breaking point” aka. “The neckline”, it’s time to pack your bags and go into stablecoins or temporarily cash out a portion of your Bitcoin.
The head and shoulders patters is one of the most bearish ones out there, so be on the lookout.
Get Started With Technical Analysis on Bitcoin:
I use tradingview as my tool for conducting technical analysis on Bitcoin, as well as altcoin. They also provide charts for stocks, commodities and other stuff. Let me show you how to use it:
How to Find a the Bitcoin Price Chart
When you fist enter tradingview.com, it’s overwhelming… There’s all kinds of flashing stuff and numbers and graphs.
Stay calm, this is what you need to do:
Go to tradingview.com and search for the chart you want to analyze. To analyze the Bitcoin chart, you need to type in “BTCUSD”
Once you’ve put in “BTCUSD” a list will show. This list is all the different sources of price data you can choose from.
For instance, you can choose Binance as a data source, which will give you the data all the way back to when Binance started selling Bitcoin.
You generally want to look at the chart with the longest history of price data, which is BLX and Bitstamp.
Now, you want to click on the button that says “Full-featured chart”
How to Use the tools in Tradingview
You’re now looking at the chart, with all the tools needed to conduct technical analysis on Bitcoin.
Let’s look at what tools you can use. I will tell you the most important ones, like how to draw trendlines and measure the percentage of specific moves etc.
Below you see a few colored arrows. Each arrow points to an important set of tools.
– The yellow arrow: Tools you will use to draw trendlines and channels.
– The green arrow: Tools to use for finding technical levels of support and resistance, like Fibonacci retracement levels etc.
– The Red arrow : Measuring tools to check out how many percentage a specific move was, or how many days/weeks/months the move took.
Do Not Drown Yourself in Technical Analysis:
I firmly believe in “KISS”. Not the band, but the principal. “Keep it Simple, Stupid.”
It’s easy to get super technical and drown yourself in Fibonacci retracemnet-levels, trend-lines on the five-minute candles, and all kinds of technical nonsense.
In my experience, this only clouds your judgment. Leave this stuff to the day traders. They are the only ones who benefit from looking at these things, not us.
We focus on buying low, holding for a long time, and selling high.
I don’t care if you use super technical, ultra-futuristic, mega algorithmic pattern-recognizing software support to trade. Most people lose money when they try to day trade Bitcoin, even if they use advanced technical analysis.
The biggest returns come to those who buy low, hold for the long term, and sell high, which is what you should be doing.
This makes everything a hundred times easier as well, as you don’t need to keep track of fifteen different things, or go through the nightmare of figuring out the taxes on all your trades at the end of the year.
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