This article is not an inducement to buy or sell a particular investment or follow a particular investment strategy. It is meant to be used for informational purposes only.

Cryptocurrency technical analysis has a lot of overlap with stock market analysis. As such, crypto traders and investors are able to use tried and true investment strategies based on technical analysis from the stock market to analyze the crypto market. 

What is technical analysis?

Technical analysis is the examination of financial charts, particularly historical trading activity that can be used to indicate future price movements. 

What we know today as technical analysis was first introduced as the Dow Theory, named after its creator, Charles Dow, who founded the Wall Street Journal. Although it is well over 100 years old, Dow Theory continues to be used as a key fundamental theory in financial analysis. 

Cryptocurrency technical analysis

1. There are three movements in the market: 

• Main movement – a primary trend, up or down, lasting over several quarters.

• Medium swing – an opposing trend shift lasting ten days to three months.

• Short swing – minor shifts occurring in the larger trend occurring for hours, days, or even months.

2. There are three phases to market trends: 

• Accumulation phase – when investors buy a given coin against the current market trend.

• Participation phase – when the broader market sees the upward price movement of the given coin and buys it as well.

• Distribution phase – when speculation sets in about the coin being overpriced and investors sell off.

3. The crypto market “ignores the news”:

   Savvy investors have their own individual investing philosophy and work hard to stick to it and not let short-term emotions make long-term decisions. They stick to their philosophy and follow hard data, candlestick charts, price action, trend lines, etc. 

   Therefore, these market participants “ignore the news”, meaning the news cycle is irrelevant because they have already made their decisions to buy or sell based on their investing philosophy.This is how investors stay ahead of the curve and buy coins in the accumulation phase.

4. Crypto market averages must corroborate:

   If a Layer 1 blockchain releases a Layer 2 blockchain with a broader service application, it follows that the coins and tokens compatible with the Layer 2 blockchain will also rally. The phrase, “a rising tide lifts all ships” applies here.

• A recent example of this is Ethereum’s merge; $ETH rose from $1,430 to $1.775 in the days leading up to merge. 

• Concurrently, Polygon – a blockchain built on Ethereum – is predicted to have its coin ($MATIC) rise by multiple factors after Ethereum’s merge.

• Another example is Compound which hit $800 when Eth reached $3,000.

5. Volume confirms a trend:

   When a crypto company releases more coins it signals market demand for that coin. When the volume of the coin increases, so will its market trend.

   Before FTX declared bankruptcy, its native FTT token was in demand as it let investors trade crypto on the FTX exchange.

6. Trends exist until definitive signals prove otherwise:

• When a trend reversal – a new trend that is the inverse of the previous trend – begins, the trend should be given the benefit of the doubt. A reversal is never predictable but siding with the majority trend when a reversal begins is usually prudent. 

• This is somewhat subjective as it can be interpreted differently by individual investors. 

Crypto market 

There are many more underlying factors and details to consider when investing in cryptocurrencies. The crypto market is far more volatile than the stock market because of its nascent nature and speculation about where its application in the real world truly lies. Crypto is often incorrectly thought of as a share of stock in a tech company.

This is not necessarily a bad thing; new opportunities for solutions. As time goes by, the crypto market will mature and broader trends will emerge. 

Yet, as volatile as the crypto market can be, Dow Theory and other proven approaches to analyzing the cryptocurrency market still stand. Investors and traders can use these tenets to make the most informed decisions for their portfolios.