01.What is a K-Chart?
A K chart is a graphical representation of the price of an asset over a given time frame. It consists of a number of candlestick patterns, each representing the same period of time. For example, in a 1-hour K chart, each candlestick represents one hour, in a 1-day K chart the candlestick represents one day, and so on.
Trend lines are a widely used tool by traders and technical analysts. They are lines that are formed by connecting certain data points on a chart. These data usually indicate prices, but there are exceptions. Some traders also draw trend lines based on technical indicators and oscillators.
The main purpose of drawing trend lines is to present price movements in a visual form so that traders can easily identify the general trend and market structure.
03. Support and resistance levels
Support and resistance levels are basic concepts related to trading and technical analysis. A support level is the "lower limit" of a price. In other words, a support level corresponds to an area of high demand where buyers can enter and push up the price. Resistance is the "upper limit" of the price. Resistance levels correspond to areas of high supply, where sellers can enter and pull prices down.
Support levels (red) are tested and broken to form resistance levels.
As you now know, support and resistance levels correspond to locations of increased demand and supply, respectively. However, there are many other factors that come into play when considering support and resistance levels.
Using technical indicators you can calculate indicators related to financial instruments. Calculations can be based on price, volume, on-chain data, open interest, social factors and even other indicators.
Technical analysis methods are usually based on the assumption that historical price patterns may influence future price direction. In this way, traders using technical analysis can use a range of technical indicators to identify potential bid and ask prices on charts.
Technical indicators can be classified in a variety of ways, including those that point to future trends (leading indicators), confirm patterns that have already occurred (lagging indicators), or indicate events that are occurring (simultaneous indicators).
01.What are leading and lagging indicators?
As we have previously described, different indicators have different criteria and are applied for specific purposes. Leading indicators are used to predict the trend of future events. Lagging indicators are used to confirm what has already happened. So, when should you use these indicators?
Leading indicators are usually ideal for short- to medium-term analysis. Such indicators are used when analysts want to predict trends and are looking for statistical tools to support their hypotheses. Especially at the economics level, leading indicators are particularly useful for forecasting recessions.
When it comes to trading and technical analysis, leading indicators are also used because of their predictive nature. However, there is no particular indicator that can accurately predict the future, so there is no need to take these predictions too seriously.
Lagging indicators are used to confirm events and trends that have occurred or are occurring. It sounds a bit redundant, but it can be very useful. Lagging indicators may reveal certain otherwise hidden market conditions and bring them to the attention of the general public. For this reason, lagging indicators are often used in long-term chart analysis.
02. Momentum indicator
Momentum indicators are designed to measure and display market momentum. What is market momentum? In short, it is an indicator that measures the rate of price change. A momentum indicator is designed to measure the rate at which prices rise or fall. Therefore, it is often used in short-term analysis by traders who want to profit from sharp market fluctuations. The goal of a momentum trader is to enter a trade when market volatility is high and exit when market momentum begins to wane. Typically, if volatility is low, prices tend to move in a smaller range. And as volatility trends increase, prices tend to produce changes in a wider range and eventually out of range. This is also the phase where momentum traders are most active. After the trade is completed and the trader exits the position, they move on to invest in another asset with strong momentum and try to repeat the same trading strategy. Therefore, the Momentum indicator is widely used by day traders, ultra-short term traders and short-term traders looking for quick trading opportunities.
01. The Relative Strength Index (RSI)
The Relative Strength Index (RSI) is an indicator used to indicate whether an asset is overbought or oversold. It is a momentum oscillator that shows how fast prices are changing. The oscillator varies between 0 and 100 and the data is usually represented as a line chart.
The RSI indicator is used on bitcoin trading charts.
Why is it important to measure market momentum? If momentum increases as the price rises, the uptrend can be considered strong. Conversely, if momentum is weakening while the price is rising, the uptrend can be considered weak and a reversal is likely to occur at this point.
Let's look at how the RSI indicator is generally interpreted; an RSI indicator at 30 or lower indicates that the asset is likely oversold; conversely, an indicator above 70 indicates that the asset is overbought.
Nonetheless, the RSI indicator results should be viewed with a certain amount of skepticism. Under unusual market conditions, the RSI can reach extremely high values. Even so, the market trend may continue for some time.
02. Moving Average (MA)
Moving averages smooth price behavior in order to facilitate the identification of market trends. Because moving averages rely on historical price data and are not predictive, they are considered lagging indicators. There are several different types of moving averages, the two most common being the simple moving average (SMA or MA) and the exponential moving average (EMA). What is the difference between these two? Simple moving averages are calculated by taking n periods of price data and calculating the average. For example, a 10-day simple moving average (SMA) calculates the average price over the last 10 days and represents the result on a chart.
200-week moving average based on bitcoin price.
The Exponential Moving Average is a bit more complex. It uses a different formula and focuses more on the most recent price data. So, the EMA reacts more quickly to recent events in the price action, while the SMA takes longer to have some follow-through with the trend.
As mentioned before, moving averages are lagging indicators, and the larger the time horizon, the stronger the lag. Therefore, the 200-day moving average responds more slowly to price action than the 100-day moving average.
03. The Exponential Smoothing Moving Average (MACD)
MACD is an oscillator that uses two moving averages to show market momentum. This indicator tracks price behavior that has already occurred and is a lagging indicator. The MACD consists of two lines: the MACD line and the signal line. The calculation is very simple: the MACD line is obtained by subtracting the 26-period EMA from the 12-period EMA, while the signal line is a 9-period EMA exponential average based on the MACD line. In addition, many charting tools use histograms to show the difference between the MACD line and the signal line.
MACD indicator applied to bitcoin charts Traders use the MACD indicator by looking at the relationship between the MACD line and the signal line. When using the MACD, it is usually necessary to focus on the crossover between the two lines. If the MACD line crosses the signal line upwards, it can be interpreted as a bullish signal. Conversely, if the MACD line crosses the signal line downward, it can be interpreted as a bearish signal.