The Five Cardinal Sins of Crypto Technical Analysis

Crypto Technical Analysis (TA) is vital for navigating volatile crypto markets.

However, certain common errors can undermine its effectiveness, leading to potential losses.

Avoiding these FIVE cardinal sins in Crypto TA is crucial to the success of your trade👇

One: Ignoring Higher Time Frames⏲️

TA involves the study of market trends across different time frames, from minutes to weeks or even months.

Relying solely on short-term charts can obscure significant market movements visible only on longer-term charts. 

Example: Traders who focused only on short-term price movements during Bitcoin's peak in 2017 missed signs of an impending bear market.

Best Practice: Integrate both short-term and long-term. Zoom Out.
Look out for macroeconomic news that could change market sentiments.

Two: Over reliance on Indicators 💹

Indicators like MACD (Moving Average Convergence Divergence) and RSI (Relative Strength Index) are popular tools for predicting market direction.

However, relying too heavily on a single indicator can lead to misinterpretations, especially if external factors are ignored.

Example: Traders in 2018 who used only the MACD for trading Ethereum failed to account for significant regulatory news, leading to unexpected losses.

Best Practice: Employ a combination of different indicators and complement technical analysis with fundamental analysis to get a well-rounded view of the market. 

Three: Neglecting Stop-Losses 🚫

A stop-loss order is an automatic sell order set at a predetermined price to limit potential losses.

Example: You bought a token that went up by 20%, and you rejoice, but you sleep only to wake up and find out that the token has gone -80% in ROI.

Best Practice: Always set stop-loss orders to manage risks effectively and protect your capital.

Four: Neglecting the OCO feature ☯️

An OCO (One-Cancels-the-Other) order is like having two plans for buying or selling something. If one plan happens, the other gets cancelled automatically.

Example:👇

Entry Point: Buy BTC at $51,000 (Buy Limit Order)
Exit Points: Sell BTC at $55,000 (Sell Limit Order)
Stop-loss at $49,000 (Sell Stop Order)

i.e. If BTC reaches $51,000, it triggers the buy order and cancels the sell limit and stop-loss orders. If it hits $55,000, it triggers the sell limit and cancels the buy and stop-loss orders. If it drops to $49,000, it triggers the stop-loss and cancels the other orders.

Best Practice: In the crypto market, using One-Cancels-the-Other (OCO) orders smartly can help manage risks and optimize profits. First, align OCO orders with your risk tolerance—use them to limit losses or capture gains. Set realistic targets, like aiming for a 5% profit while being ready to cut losses at 2%, considering the market's volatility. Combine OCO with other orders like stop-losses for better risk control. Practice with a demo account to get the hang of it. This strategy can help you navigate the crypto market more effectively, securing profits and minimizing losses.

Five: Trying to Catch the Falling Knife

Attempting to purchase assets during a rapid decline, hoping for a quick rebound, is risky and can lead to significant losses, especially if market manipulation is on the high.

You will get cut if you try to catch a falling knife! 🔪🩸

Example: Bitcoin's descent from $20k to $3k is a classic example of a "falling knife" scenario in the financial markets.

Best Practice: Avoid impulsive buys during market downturns. Conduct thorough research and wait for signs of market stabilization before investing.

That’s it! Avoid these cardinal sins and you might come out in the green🟢

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