Technical Analysis: How to Identify Market Signals and Build a Strategy

After mastering risk management, a trader needs to learn how to make entry and exit decisions. Technical analysis of cryptocurrencies helps you spot patterns on charts and assess market behavior without guesswork.

In this article you will learn:

• how to read cryptocurrency charts, what to look at first, and how not to overload the screen;
• how to determine the trend and support/resistance levels;
• which trading indicators are useful in the crypto market and how to combine them without noise;
• how to find entry and exit points in trading with risk control.

According to Binance Academy, more than 75 percent of professional traders use elements of technical analysis even in fundamental strategies. It is a universal tool that helps you navigate any phase of the market.

Technical analysis is based on a simple idea: the market reflects everything that is happening. Expectations, news, and participants’ emotions are already priced in. Therefore, the chart shows not random fluctuations but the history of decisions made by the majority of traders.

Unlike the fundamental approach, which evaluates projects, partnerships, and tokenomics, technical analysis of cryptocurrencies shows the real-time reaction of market participants. According to CoinGecko, more than 60 percent of crypto traders make decisions guided specifically by levels and indicators.

This is logical: the crypto market trades around the clock, and data is updated every second. There are no quarterly reports here, but there is transparent trade statistics. Technical analysis helps you see probabilities. It does not promise an exact forecast, but it gives a structure within which each move can be explained. For the crypto market, where volatility often exceeds 10% per day, this is especially important.

A candlestick chart in trading shows the balance of power between buyers and sellers. Each candle consists of a body and wicks. The body reflects the difference between the open and close, and the wicks mark the minimum and maximum values for the selected period.

It is important for a beginner to understand how to recognize market direction. To do this, compare the sequence of highs and lows and assess where candles are closing. A bullish candle indicates a price increase, while a bearish one shows a decline. When a series of consecutive candles appears on the chart, they form patterns that can indicate market sentiment.

It is useful to remember that daily and weekly charts help you see the overall direction of price movement. Hourly and minute charts are convenient for finding short-term entry points. A candle close above resistance confirms a breakout, while long wicks indicate a standoff between large participants.

When analyzing the BTC/USDT pair, the average range of a daily candle exceeds 3%, and intraday fluctuations can reach 6%. Therefore, small moves should not affect the overall trading plan. On highly liquid exchanges, such as Binance or OKX, trading volume affects candlestick shapes. If price changes quickly but volumes remain low, this may indicate a false breakout.

Identifying the trend is considered the foundation of any cryptocurrency chart analysis. An uptrend forms when each peak becomes higher than the previous one, and a downtrend appears when lows gradually decline. For convenience, use trendlines that connect successive extremes.

How to work with levels:

• a support level is a zone where price stabilizes after a decline;
• resistance is a boundary where growth slows;
• a retest of a level often provides a second entry point;
• a breakout confirmed by volume strengthens the signal.

This approach helps you see the trend and support levels, as well as understand where to enter and where to lock in results. CoinGlass statistics show that 68% of breakouts are followed by a return to the level before the move continues. Therefore, it is important not to rush into a trade immediately after an impulse.

To determine direction more precisely, use crypto moving averages (MA) with different periods. When a short moving average crosses a long one from below, it is considered a sign of an uptrend.

Indicators are mathematical tools that help determine the strength and direction of price movement. In crypto trading, RSI, MACD, moving averages (MA), and trading volume data are most commonly used.

RSI and MACD in simple terms:

• RSI shows how overheated the market is. When the indicator rises above 70, the asset is considered overbought; if it falls below 30, it is oversold.
• MACD helps you see a shift in momentum; when the indicator’s lines cross, this often indicates a potential reversal.

Moving averages (MA) smooth fluctuations and show the overall direction of price movement. If price is above the 200-day MA, the market can be considered bullish; if it is below, the risk of decline increases.

Cryptocurrency trading volumes help confirm signal strength, since a breakout without rising volume often turns out to be false.

Practical tips:

• do not use more than three indicators at the same time so you do not get lost in signals;
• always consider cryptocurrency trading volumes, because they confirm participants’ interest in the move;
• confirm any indicator with a candlestick pattern or volume;
• avoid duplicating tools such as using RSI and Stochastic simultaneously.

Research by Santiment shows that combining RSI with volume increases the accuracy of identifying local BTC reversals to 65%.

Technical analysis patterns help you understand market participants’ behavior and determine the likely direction of price movement. These visual models repeat across different assets and timeframes, reflecting typical trader reactions to changes in supply and demand.

Examples of patterns:

To avoid false entries, it is important to consider the broader market context. A pattern forming near a strong resistance level or around a news event may be unreliable. At the same time, if a pattern appears in the middle of a steady trend and is confirmed by RSI or MACD, the probability of successful follow-through is significantly higher.

Technical analysis of cryptocurrencies always requires confirmation by volume, because volume shows the real strength of a move and helps distinguish a true breakout from a short-term spike.

A good trade starts not with intuition but with signal confirmation. Experienced traders open positions only when there is a set of signs confirming the direction. The mistake most beginners make is trading on emotions rather than on data.

A reliable entry point forms after a retest of a level, when price checks a support or resistance zone and the signal is confirmed by RSI or volume. Additional confidence comes from the confluence of several indicators, for example RSI and MACD. For detailed rules on calculating risk, see the previous article in the series, Risk management: how not to lose your deposit.

Step-by-step algorithm for determining entries and exits:

• determine the trend direction and key levels on a higher timeframe (D1 or H4);
• find confirmation of the signal on a lower chart to refine the entry timing (H1 or M15);
• calculate a risk-to-reward ratio of at least 1:2 so the trade makes sense;
• set a stop-loss and take-profit in advance based on your plan;
• monitor volumes, because a strong move without volume support is often false;
• do not scale into a position without revising risk and updating your analysis.

For example, with a 1,000 USDT deposit and a 2% risk, the stop-loss should be 20 USDT. If the potential profit to the take-profit is less than 40 USDT, it is better not to open the trade. This set of rules forms a TA-based strategy in which each trade relies on levels, signals, and a pre-calculated risk.

Even the most accurate model loses its meaning if a trader does not maintain discipline and does not control risk. According to Bitget Academy, more than seventy percent of beginners lose their deposit specifically due to repeated mistakes in applying technical analysis. Most of these are not about the tools themselves but about the lack of a systematic approach.

Common mistakes traders make when analyzing charts:

• setting stops that are too tight and get taken out by normal market noise;
• trading against the primary trend while trying to catch a reversal;
• ignoring volume when breaking through a key level;
• using too many indicators that generate conflicting signals;
• opening trades without confirming the entry by pattern or volume.

These mistakes may seem minor, but they most often lead to losses. The cryptocurrency market is especially sensitive to news and the actions of large participants, so sharp moves occur even without fundamental reasons.

For example, during the release of FOMC decisions or U.S. labor market reports, the bitcoin price can swing by 6–8% in just an hour. Such spikes often “wipe out” positions of those who set their stop-loss too close or entered without confirming the signal. Therefore, it is important to remember that technical analysis does not guarantee a result; it only increases the probability of success if discipline and clear risk management are in place.

When the technical picture is clear, it becomes easier to build crypto market analysis, link local signals with the overall dynamics, and plan trades. Technical analysis does not predict the market; it helps you understand probabilities and see the structure of price movement.

Combined with risk management and capital management, it becomes a system rather than a gamble. Understanding how technical analysis works helps you notice chart logic, control risk, and make decisions without emotions.

The next article in the series is Fundamental analysis: how to evaluate projects and events. It explains how news, updates, and tokenomics affect coin prices and why this data complements technical analysis.