Learn Trading from Scratch: The Complete Roadmap to Cryptocurrency Technical Analysis

Profiting in the digital asset market is not about luck but requires mastering systematic analysis methods. Whether it’s Bitcoin (current price: $87.12K) or other cryptocurrencies, successful traders consider the following three key factors:

Reasonableness of Entry Price — Choose to buy at relatively low points
Profit Expectations — Set clear target prices
Time Frame — Determine a reasonable period to reach the target price

Why Learn Technical Analysis?

Many people oppose technical analysis (TA) and fundamental analysis, but in reality, both are indispensable. Fundamental analysis studies macroeconomic trends, industry conditions, and competitive landscapes, while technical analysis focuses on market sentiment, historical price patterns, and trading volume data.

For crypto enthusiasts looking to improve their trading skills, mastering technical analysis is essential. It is not only a free course knowledge but also the cornerstone of trading success. This article will help you understand the core principles of technical analysis, learn to identify trading opportunities, and make smarter decisions.

What Exactly Is Technical Analysis?

Simply put, technical analysis is predicting future market trends by studying past price movement patterns and using mathematical indicators.

Markets do not fluctuate randomly. The true logic is: established upward trends tend to continue upward for a period, and downward trends do the same. That’s why experienced investors tend to buy at the bottom and sell at the top.

Unlike fundamental analysis, technical analysis relies entirely on historical price and volume data. It does not consider company finances or industry prospects, only the patterns of price fluctuations. This method is especially useful for short-term traders but has its limitations—it cannot predict all market events.

How Does Technical Analysis Work?

Price movements in the crypto market stem from imbalances in supply and demand. When supply exceeds demand, prices fall; when demand exceeds supply, prices rise. But the key question is: when will these changes occur?

The core task of a technical analyst is to observe charts and identify the critical point where the price is about to initiate a move. To do this, they need to use multiple tools—most importantly, various indicators.

Effective technical analysis combines candlestick charts with multiple indicators. These indicators generate signals based on price and volume data, helping traders identify trends and find the best entry and exit points.

Core Indicator System of Technical Analysis

Simple Moving Average (SMA)

This is one of the most basic and widely used indicators. The calculation is straightforward: sum the closing prices over a period and divide by the number of periods.

For example, if the last three days’ closing prices are 1, 2, and 3, then the SMA is (1+2+3) ÷ 3 = 2.

The SMA is called a “moving” average because it dynamically updates with each new price. This creates a flowing curve that filters out short-term noise, helping traders see the big trend.

Exponential Moving Average (EMA)

An upgraded version of SMA, it gives more weight to recent prices. In other words, EMA reacts more sensitively to the latest market movements.

How to use EMA to develop trading strategies:

• When the price approaches or crosses below the EMA line from below, consider buying
• When the price falls below the EMA line, consider selling
• Rising EMA often acts as support
• Falling EMA often acts as resistance

EMA performs best in trending markets. When the price is above the EMA, it indicates an uptrend; below, a downtrend. Note that EMA is a lagging indicator, so signals may have some delay.

When EMA crosses above SMA from below, it is usually seen as a buy signal, and vice versa.

Relative Strength Index (RSI)

RSI is an oscillator indicator with a range between 0 and 100. It processes price data mathematically rather than simply tracking price changes.

RSI is used to determine whether an asset is overbought or oversold. Due to the high volatility in crypto markets, indicators like RSI help traders pinpoint entry and exit points precisely.

Stochastic RSI

Some traders deepen their analysis by using stochastic RSI—a version of RSI that applies a stochastic oscillator formula to RSI values. It also fluctuates between 0 and 100, providing more detailed market sensitivity analysis.

Moving Average Convergence Divergence (MACD)

MACD is derived by calculating the difference between two exponential moving averages. The formula is:

MACD = 12-period EMA - 26-period EMA

The crossover of this line with another EMA (signal line) generates trading signals.

MACD trading rules:

• Bullish signal: MACD crosses above zero line
• Bearish signal: MACD crosses below zero line

Bollinger Bands

Bollinger Bands consist of three lines forming a channel around price movements. The middle line is a simple moving average, and the upper and lower lines adjust automatically based on volatility.

This indicator is used to identify overbought and oversold conditions, measure market volatility, and predict potential reversals. Traders use it to assess trends, evaluate risks, and forecast reversals.

Price Action Trading

Some traders do not rely on any indicators but predict future movements solely by studying historical price and volume trends. This is called Price Action trading.

Price movements are not random. Every rise or fall has a reason—traders can “read” the market by observing historical data to forecast the next move.

The core of price action analysis is to identify trend waves and retracement waves:

• When trend waves are larger than retracement waves, the trend continues
• By observing “local highs” and “local lows,” traders can determine trend direction
• In an uptrend, each new high is higher than the previous, and each new low is higher than the previous low
• In a downtrend, the pattern is reversed

The Art of Candlestick Analysis

Japanese rice traders invented candlestick charts in the 18th century, and they remain the most powerful visual tools for price analysis today. Each candlestick consists of three elements:

• Body: Shows the range between open and close prices
• Wicks (Shadows): Show the highest and lowest prices of the day
• Color: Green/white indicates an upward move, red/black indicates a downward move

Various candlestick patterns help traders identify support and resistance levels, assess supply and demand forces, and predict trend continuation or reversal.

Pivot Points

Professional traders often use pivot points to mark key support and resistance levels—areas where price may change direction.

The advantage of pivot points is that they are entirely objective. Unlike some indicators requiring subjective judgment, pivot points are calculated mechanically. Traders have historically used this method to predict support and resistance in stocks and commodities.

The most common calculation method is the “five-level system,” based on the previous trading day’s high, low, and close prices:

• Pivot Point P = (Previous High + Previous Low + Previous Close) ÷ 3
• Support 1 S1 = P × 2 - Previous High
• Support 2 S2 = P - (Previous High - Previous Low)
• Resistance 1 R1 = P × 2 - Previous Low
• Resistance 2 R2 = P + (Previous High - Previous Low)

Fibonacci Retracement Levels

Fibonacci retracement levels are among the most widely used tools in technical analysis. These special percentage levels (0%, 23.6%, 38.2%, 50%, 61.8%, 100%) help traders predict potential bounce or pullback ranges.

Why do traders rely on Fibonacci? Crypto markets rarely rise or fall in a straight line; they often undergo short-term corrections and retracements. Fibonacci levels are based on the golden ratio—each number is approximately 1.618 times the previous one.

Drawing these key percentage lines on price charts reveals support and resistance convergence points. But remember, Fibonacci is only a confirmation tool and should be used in conjunction with other indicators like MACD, trendlines, moving averages, and volume. The more confirmation signals, the more reliable the trading opportunity.

Practical Limitations and Trading Tips of Technical Analysis

The goal of technical analysis is to forecast the future trend of crypto assets. The good news is that financial tools’ prices tend to repeat historical patterns.

But it must be recognized that technical analysis is not foolproof. It cannot guarantee 100% accurate signals. Professional analysts constantly scrutinize the weaknesses of each signal and prioritize risk management.

Traders need to understand the logic behind each price movement of Bitcoin and other assets and establish a systematic position management system. Learning technical analysis takes time and practice, but once mastered, it can generate stable profits.

Final advice: Relying solely on technical analysis or fundamental analysis is not enough. Combining both methods is the most prudent approach. While fundamental analysis is traditionally used for long-term investing, the short-term market information provided by technical analysis is equally valuable for traders and investors—especially when determining the best buy and sell timing.