Our second week dives deeper into technical analysis indicators you can use.
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Welcome back, friends. I hope you got a chance to try out some of the beginner trading strategies from last week. There are other beginner strategies to try out if those didn’t strike your fancy.
This week we’re going to continue our dive into technical analysis, including more specific and advanced techniques as well as an index that measures sentiment, or how the market is feeling about crypto.
Between 1 and 100. Today, it’s 31. It’s not my age or how many bitcoins I own (I wish, on both counts), but today’s value from the crypto Fear and Greed Index, which I also like to think of where we are on the scale of FUD to FOMO. The closer that number is to 1, the more fear and uncertainty are driving people’s decisions. The higher the number, the more greed is driving decisions.
Why does this matter? Because when people are scared, they sell – and often at a much lower price than how things are valued. For example, think of a family who unknowingly buys a haunted house and ends up selling at a huge loss to get out, fast. By contrast, when people are worried they are missing out on the next big thing they will pay much more than the asset is worth just to be “part of the action,” often right before the hype falls away and prices crash.
So how do they arrive at the final number? Read on to find out what factors into it and if it makes sense to layer into your investing strategy:
One thing I’ve hinted at is that most people who use technical analysis don’t rely on a single signal or isolated pattern but use multiple and different data points and charting techniques to arrive at their predictions.
For instance, a lot of charts depend on being able to calculate a moving average to spot a pattern. Two moving averages – commonly the 50-day and 200-day moving averages – are used to spot the dramatic death cross and golden cross patterns. Where and how the lines cross tells analysts if things are looking bearish or bullish. Other patterns will help traders predict if a coin’s price will likely continue on the same path or reverse course.
You don’t have to understand every single possible pattern or indicator at once, and you may find that just looking at support and resistance or finding a flag gives you the signals you need. However, if you are finding the predictions you’re making are turning out wrong more often than right, it’s worth layering in additional signals. I like the Relative Strength Index, another index measured on a scale of 1 to 100, which signals if a token is overbought or oversold.
If you’re ready to level up, here are others I recommend:
If you’re hungry for more, you can add on the Awesome Oscillator or the Stochastic Oscillator, which are a bit more complicated but totally within your reach.
Let’s Be Careful Out There
Switching gears, this week’s safety article is inspired by a recent problem with my kid’s computer, which had become almost unusable due to weird malware and general bloat that happens when you’re a kid and just download random apps and click links in Discord that were maybe best left unclicked.
While the problem in my case wasn’t related to crypto, it’s not uncommon to find out you’re a victim of cryptojacking – and don’t feel bad if you are. Even Tesla fell prey to this kind of attack. Here’s what you need to know:
Next week we’ll look into crypto derivatives like options and futures. Have you found a TA tool you like yet? Let me know at learn@coindesk.com.
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Disclaimer: The information contained in this newsletter, and any information linked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. You should seek additional information regarding the merits and risks of investing in any cryptocurrency or digital assets.
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