Does technical analysis work for cryptocurrency?
Technical analysis is used to figure out how much an asset will be worth in the future. This is a common way to figure out how market conditions will affect an asset. This is essential for investors and traders. TA tells you the following:
- how to buy or sell an asset at the right price;
- how long you should hold it if you’re a trader;
- how much risk you’re taking; and
- how much money you’re likely to make.
Understand these factors
Before proceeding, it is critical to establish expectations for what TA can and cannot give when implemented to crypto assets. To begin, TA is often used to find short-term trading opportunities (typically two weeks to one month). However, TA does not provide prospects for long term investments. On the other hand, you may use TA to determine entry and exit points for any type of investment.
Second, every transaction involves some level of risk. TA is not a set of rules — it is a guideline. Under certain external factors, strategies may backfire. Therefore, if you are a frequent trader, it is critical to constantly have a plan to limit losses rather than wait for an asset price rebound.
Third, short term trades are more prone to provide modest profits. Consequently, anticipating massive gains in a short amount of time may end in disappointment and a catastrophic transaction in the worst-case scenario. To conclude, TA is most effective when employed to generate reasonable returns over a short period of time.
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