Glossary of Key Cryptocurrency Technical Analysis Terms You Need to Know


Welcome to the world of technical analysis, a trading approach that seeks to create price targets based on historical price movements and other available quantitative information.

A beginner diving into the world of cryptocurrency technical analysis trading videos will likely find themselves struggling with several words they may not be familiar with, making it that much more difficult to extract actionable insights. We’ve put together a quick hit list of technical analysis terms he needs to know about to get more value from his research.



Average Directional Index (ADX):

Calculates the strength of a market trend over X number of price bars. Typically used with the DMI to improve accuracy. ADX (14) readings below ten often precede breakouts from the consolidation zone. Readings above 60 are unsustainable and warn of impending trend exhaustion.

Average True Range (ATR):

It is used to identify volatility breakout trading signals and confirm trend exhaustion. It is often used to create trailing stops that adjust automatically. Breakout price bar ranges that are 2-3 times higher than the ATR (14) often start powerful market trends.


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Bollinger Bands (BB):

Standard deviation envelopes that determine overbought/oversold extremes in non-trending markets. BBs are very useful for breakout traders and identifying price/momentum divergences. The ‘Bollinger Band Squeeze’ price pattern helps confirm a market’s rapid transition from an ultra-low to high volatility range.

Escape:

Term used to describe a powerful price move that breaks out of a well-defined consolidation zone or chart pattern. Confirmed violations of trend lines or key support/resistance levels are also considered breakouts.

Commodity Channel Index (CCI):

This oscillator identifies overbought/oversold extremes in non-trending markets and also helps identify ‘pullback’ trade entry zones in trending markets. The CCI is also a very sensitive price/momentum divergence indicator. It produces many varieties of short-term trading signals.

Consolidation:

A trading range marked by well-defined price swings and low volatility. It occurs as a ‘pause’ pattern in a strong trend and can also occur at market highs and lows. Chart patterns such as pennants, wedges, and rectangles represent consolidations. The longer the consolidation period, the more powerful the eventual breakout can be .

Chaikin Money Flow (CMF):


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A price range/volume indicator that measures the flow of institutional money in and out of a market. Very useful for confirming volatility breakouts and trend strength. CMF is also an exceptional divergence indicator.

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Cycles:

Repetitive patterns of buying and selling pressure that manifest as oscillating waves (price fluctuations) in all liquid markets. Calculation of mean cycle length (measured trough-to-trough) can provide operators with advanced insight into high probability reversal termination and/or reversal zones.

Directional Movement Index (DMI):

A trend confirmation indicator, typically used with ADX to determine trend strength. Crossovers of the DMI+ line above/below the DMI- line can be used as trading signals. When an ADX line value crosses any DMI line, a strong market trend may be in/near a stop/finish zone.

Double Stochastic Oscillator:

A smoother version of the stochastic indicator. Very effective in identifying the highs / lows of the primary price cycle in all liquid markets. It is used to identify retracement trade entries in trending markets and to confirm price/momentum divergences.

Exponential Moving Average (EMA):

Calculates the average price of a market over X number of price bars, putting more emphasis on recent price action. Responds to market price action faster than the SMA . It is usually plotted as a line on a price chart. The main use is to determine the direction of the trend and the strength of the momentum, but it can also act as a powerful support and resistance level. EMA crossovers can also be used as trading signals.

Fibonacci Retracement: (Fib):

A mathematical formula used by traders to forecast high probability support/resistance zones in liquid markets. It measures the most likely retracement levels of a developing market reversal relative to the size (distance in points or time period) of a previous market reversal. The most common ratios are 38.2%, 50%, 61.8%, 78.6%, 100%, 127.2%, and 161.8%

Keltner channels:

These ATR Price Based Price Envelopes are used to forecast high probability support/resistance targets and confirm price/momentum divergences. They are also used to generate buy/sell breakout signals.

Moving Average Convergence-Divergence (MACD):


Calculates the 9-period EMA from the spread between the 12-period and 26-period EMAs . Used as momentum buy/sell signal and price/momentum divergence confirmation. Buy/sell signals that occur at/near the MACD zero line can precede significant market trends. A benchmark trend confirmation indicator.

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Parabolic and reverse (ParaSar):

A combination of technical indicator and trading strategy. Essentially a trend following strategy that is always in a long or short position. Filtering ParaSar buy/sell signals to trade in the direction of the primary trend can improve trading results. It can also be used as a stand-alone trailing stop.

Relative Strength Index (RSI):

This oscillator identifies overbought/oversold extremes in non-trending markets and also helps identify ‘pullback’ trade entry zones in trending markets. The RSI is also an effective price/momentum divergence indicator. RSI (14) readings of 50 or more imply an uptrend, readings below 50 imply a downtrend. RSI (2) and RSI (3) pullbacks in a strong trend can offer high probability and mean reversion (short-term) trade entry signals.

Resistance:

A price level at which price advances are anticipated to stall/reverse. Previous swing highs/lows, trend lines, Keltner channels, Bollinger bands, Fibonacci retracements and high volume VPOC nodes can all act as key resistance levels.

Simple Moving Average (SMA):

Calculates the average price of a market over X number of price bars. It is usually plotted as a line on a price chart. The main use is to determine the direction of the trend and the strength of the momentum, but it can also act as a powerful support and resistance level. SMA crossovers can also be used as trading signals.

StochRSI oscillator:

Combine Stochastics and RSI in one oscillator. Identifies overbought/oversold extremes in non-trending markets and also helps identify ‘pullback’ trade entry zones in trending markets. It is also very useful as a price/momentum divergence indicator.

Support:

A price level at which price declines are anticipated to stop/reverse. Previous swing highs/lows, trend lines, Keltner Channels, Bollinger Bands, Fibonacci Retracements and high VPOC volume all nodes can act as key support levels.

Swing:

A sustained bullish/bearish price movement. In uptrends, price swings spend more time going up than down, and vice versa for downtrends. In non-trending markets, price swings have a less directional bias. A series of connected market swings can help confirm trend strength, trend reversals, and price/momentum divergences.

Trend:

Defined as a series of higher swing highs and higher swing lows for an uptrend and a series of lower swing highs and lower swing lows for a downtrend. The slope of an EMA or SMA is frequently used to determine the direction/strength of the trend. ADX and DMI are also used together for the same purpose.

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Trend line:

A support/resistance (S/R) line. Constructed by connecting at least two significant swings/lows and then extending the line forward. Post-tests of the trend line are often perceived as trade entry points. Subsequent violations of the trend line are interpreted as a change in trend. The more times a trend line is successfully tested, the stronger the perceived S/R level.

Stop loss of:

An instruction (to a broker or exchange) to exit a long position if it falls to a predetermined price (vice versa for short positions). The purpose is to limit losses from a losing trade or lock in profits from a winning trade. It is often entered as a ‘GTC’ (good until cancelled) and/or as a ‘market order’.

Volume Point of Control (VPOC):

A key indicator of ‘volume to price’. Represented as a histogram on a price chart. It represents the price level at which the greatest amount of trading activity occurred. The longer/narrower the peak of the histogram, the more significant the VPOC support/resistance level can be. Strong breakouts beyond a VPOC often start a trading market swing.

final thoughts

This basic list of indicators and definitions of charting concepts will guide you to a better understanding of cryptocurrency technical analysis terms.


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