Cryptocurrency is a digital or virtual currency that runs through a blockchain network. The cryptographic formula provides security to these assets, which doesn’t allow double-spend or counterfeit.
The crypto market is decentralized and based on blockchain technology. Cryptocurrencies are more like tokens you have to purchase with money. The first blockchain-based cryptocurrency ‘Bitcoin’ was invented back in 2009. It is also the most popular and valuable till now.
Some speculators choose currencies because it doesn’t affect factors like macroeconomics or politics, such as other ones. By looking at the recent growth of such currencies, many investors show interest in the crypto market nowadays. Features like inflation resistance, portability, transparency, and divisibility make cryptocurrencies more attractive to investors. There are over 1600 cryptocurrencies available, and over 40 million crypto wallets created till now.
To trade these currencies, you must learn to identify the trend before investing your money. This article will discuss all the crypto market trends and the three best ways to determine the crypto market trend.
What is a сryptocurrency market trend?
‘Trend’ and ‘range’ are the two most common terms in the financial market, where trend means following some specific direction: uptrend, downtrend, sideways.
- When the price remains on an uptrend, it moves by making higher highs — the uptrend indicates the buyers’ domination of the asset price.
- When it is on a downtrend, it creates lower lows when the price shifts — the downtrend shows the sellers’ domination of the price movement.
This figure above shows the basic price movement where the higher highs and lower lows are marked. For technical analysis identifying the market, the trend is significant because strategies serve more profitability than many others. Thus, trend analysis is the core of making an investment decision as if you enter a trade when the price is trending, that increases your possibility to make a profit.
Like other financial markets, the crypto market trend is also the same. You can make money from:
- Buy orders in an uptrend market or the price movement.
- When the market is downward, you have to place sell orders to have profit.
Anyway, there are several ways to identify the crypto market trend and discuss the best methods.
How to identify crypto market trends
Let’s discuss the best ways to find out cryptocurrency market trends. The price movement of cryptocurrencies is no different than other financial markets.
In an uptrend, market price moves by making higher highs and a bearish correction within a bullish move. So there is a bullish correction on a bearish move, and price makes lower lows on a downtrend market.
Identify cryptocurrency trends using Ichimoku Cloud
Ichimoku Cloud is a viral technical indicator used by traders to identify price movement tendencies. Let’s learn about the elements of this indicator:
This area is known as the price reversal zone, a combination of Senkou Span A and Senkou Span B.
It shows the medium-term price sentiment of the asset, which is also the average price of the last 26 candles, highs, and lows.
This is a short-term price sentiment of the asset and made of average price movement of last nine candles highs and lows.
If the price movement is bullish, Chikou Span stays above the Kumo Cloud and vice versa for a bearish price movement of the applied asset.
|For uptrend confirmation check||For downtrend confirmation check|
|Chikou Span is above the Kumo cloud and not facing obstruction from price.TenKan Sen is above the Kijun Sen (indicates the price is in the short term bullish).The price is above the Kumo Cloud ( indicates long-term bullish).Check that Senkou Span A is above Senkou Span B (in the future cloud).||Chikou Span is below the Kumo cloud and not facing obstruction from price.TenKan Sen is below the Kijun Sen (indicates the price is in short-term bearish).The price is below the Kumo Cloud ( indicates long-term bearish).Check that Senkou Span A stays below Senkou Span B (in the future cloud).|
Identifying cryptocurrency trends using the Golden Cross
The cross method is a proven method to identify trends. Two different valued (short/long-term) moving average (MA) indicators are required to identify trends by this method.
|The best value for the MA would be an EMA (50) and a SMA (200) signal line. |
A golden cross happens when the short-term MA crosses above the long-term MA line like the fig above.
When the short-term MA line crosses below the long-term MA line, a death cross indicates the price movement is downward for the asset.
Identifying cryptocurrency trends using multi time frame analysis
The multi time frame analysis is prevalent among smart investors. Not just cryptocurrencies, you can quickly sort out the fake trend and avoid them by multi time frame analysis for any trading asset. This type of analysis is done in two steps.
Step 1: identify key levels
First, you have to identify the key levels from the more extensive charts. What is the key level? The level where the price starts a new trend.
We expect the price to rebound at the key levels.
- When the key level is broken, you can expect the trend to expand furthermore.
- When the price moves above the key support level, you can buy/sell when the price starts to move below the key resistance level.
Step 2: identify short-term event levels
In the next step:
- Identify the near-term event levels from the lower time frame charts.
- Match the data with the higher time frame charts.
- Place eligible orders.
Fig shows how the price continues to fall by making event levels (4-hour charts) after facing key resistance on the daily chart.
How to make trading decisions based on trends?
Finally, identifying trends is not all for crypto trading. You can easily make money from crypto trading by identifying trends, but you must have a sustainable strategy and proper trade management to be a profitable crypto trader.
However, after following all trading rules, some risks are unavoidable. So you must know your entry, exit, stop loss, etc., trade management data before entering a trade. Knowledge, skill, and experience can easily make you a successful crypto trader.