How the cryptocurrency market works: understand it in detail

Technical analysis of cryptocurrencies has long gone beyond charts. Financial strategies in the digital age require accurate and adaptable tools, able to identify patterns in a highly volatile environment. A superficial glance does not reveal the essentials. Only a systematic approach can extract signals and turn them into informed trading decisions.

Why apply technical analysis to cryptocurrencies?

Every price movement in the cryptocurrency market is shaped by a combination of factors, but not randomly. Technical analysis of cryptocurrencies helps build market logic based on past data, mathematical patterns and market psychology.

Platforms with millions of participants generate behavioural cycles. Indicators, levels and shapes form the language in which the market communicates its intentions. The aim of analysis is to identify entry and exit points with a high probability of profit. No fundamental approaches or external events are used. Only the chart, volumes and behaviour of participants.

Tools: how to structure technical analysis of cryptocurrencies

Each statistic is based on a combination of three main areas: levels, indicators and chart patterns. The segments reveal individual facets of price behaviour. Before moving on to specific strategies, it is important to form an analytical framework. This includes

1. Historical candlestick data (OHLC).
2. Market depth and trading volumes.
3. Time frame of analysis: M5 to 1W.
4. Asset volatility.
5. Correlations with indices, fiat or other tokens.

Levels and zones: graphical skeleton

No indicator is a substitute for a high-quality level marker. Technical analysis of cryptocurrencies uses support and resistance levels as the core to assess market reaction.

Working techniques:

1. Horizontal levels by extremes.
2. Mental levels: multiples of 1,000 (e.g. $20,000 for BTC).
3. Consolidation zones: sideways zones with volume accumulation.
4. Dynamic levels: moving averages as resistance/support zones.

Indicators: algorithms in action

A candlestick chart alone does not reveal the trend structure. Technical analysis of cryptocurrencies uses indicators as mathematical complements to the visual picture.

Key patterns:

1. Moving average (MA) – smoothes the chart, determines direction. Simple and exponential versions differ in reaction speed.
2. RSI (Relative Strength Index) – shows overbought/overold. Values above 70 and below 30 give reversal signals.
3. MACD (Moving Average Convergence Divergence) is a trend indicator based on moving averages. Intersections of the lines indicate a phase change in the market.
4. Bollinger Bands: measure volatility. Exits beyond the bands indicate a possible correction or momentum.
5. Volume – confirms movements. Higher volume on a breakout makes the signal more reliable.
6. Stochastic oscillator – estimates the probability of a reversal. Often works in conjunction with the RSI.
7. Ichimoku cloud – Japanese tool that shows trend, levels and signals all at once. Requires practice, but gives deep insight into the market.

Patterns – pure price behaviour

Candlestick and chart patterns in technical analysis of cryptocurrencies reveal behavioural patterns. Their effectiveness has been proven for decades in traditional and digital markets.

The main patterns are:

1. ‘Absorption’ – a reversal signal.
2. ‘Hammer’ and “Executioner” – indicate a change in sentiment.
3. ‘Doji’ – a signal of uncertainty.

Chart patterns:

1. ‘Head and Shoulders’ – a reversal signal.
2. ‘Flag’ and “Pennant” – trend continuation.
3. ‘Double Top/Bottom’ – confirmed reversal.

Psychology and behaviour: the basis of cycles

Technical analysis of cryptocurrencies is based on understanding the phases the crowd goes through: it is the psychology of the crowd that determines price movements. Each movement reflects a specific emotional state of the participants: from hope to panic.

The first phase is formed at the moment of accumulation. Experienced participants set underestimated levels, volumes grow weakly, the price moves sideways. Here the basis is formed for future growth, which the crowd does not yet perceive.

Then momentum ignites. Large orders push the price higher, the chart breaks through key levels. Interest in the asset grows and new entrants enter the market. At this stage, classic inertia manifests itself: growth generates demand, which triggers further growth.

At the peak of the cycle, the price enters the euphoria zone. The media publish optimistic headlines, talk shows are filled with ‘10 times’ predictions. New entrants enter easily, while volumes are already stagnant. Big traders lock in their profits. Reversal signals are ignored as emotions win out over logic.

Then liquidation begins. A sharp drop causes a shock, sellers rush to exit. Technical analysis of cryptocurrencies at this stage shows support breaks, candlesticks take an elongated shape with strong shadows. Panic peaks when the price breaks accumulation levels.

This is followed by the capitulation phase. Everyone leaves the asset, participants lose confidence. The chart shows a deep pullback with minimal volatility. It is at this point that the bottom is formed. This is where the most profitable positions are opened, against the mood of the crowd.

Consolidation completes the cycle. The market enters the sideways corridor, the big players accumulate volumes again. Everything repeats itself. With technical analysis of cryptocurrencies, you can follow this recurring scenario and use it to the benefit of your strategy.

Time frames and strategies: short-term vs. long-term

The holding period of a position affects the whole analysis algorithm. A short-term trader relies on momentum, while a long-term trader relies on structure. Technical analysis of cryptocurrencies shows different price behaviour at different time intervals. It is important to adapt the methodology to your own style.

Scalping involves working on minute charts. In the M1-M15 segments, price moves impulsively, with sharp shocks. Reaction speed is important here. Analysis is based on continuation, breakout and rebound patterns. Fast indicators (stochastics, VWAP) help detect pullbacks with minimal delay.

M30-H1 time frames are used for intraday trading. Intraday movement is observed in these ranges. Operating levels are based on daily highs and lows. Volumes and price behaviour at the opening of the session are taken into account. Technical analysis of cryptocurrencies at this level allows finding entry zones during the day and closing the position before the end of the day.

Swing trading requires observation of H4 and D1. Analysis includes leading figures, moving averages and accumulation volumes. A trader holds a position for several days and focuses on the changing market structure. Signals with confirmation are important here. Errors become more critical, so analysis requires more precision.

Position trading is based on a weekly chart (1W). The most important thing here is the trend. Tools: MA200, resistance support levels, head and shoulder figures, double bottom. Volumes indicate stages of accumulation or distribution. Technical analysis of cryptocurrencies on a high timeframe shows the general mood of the market and allows you to make long-term investment decisions.

Conclusion

Technical analysis of cryptocurrencies is not just about lines and charts. It is a layered system that combines psychology, mathematics and strategy. It is based on the logic of repetition, behavioural patterns and analysis of price-volume interaction. The deeper the analysis, the more reliable the input. Accuracy is achieved with practice and results with a systematic approach.

Cryptocurrencies haven’t just changed the financial landscape; they’ve completely revolutionized it. But if you still think that there’s only Bitcoin, it’s time to find out what’s behind this plethora of digital assets. In addition to popular currencies, there are dozens of other currencies with unique features and purposes. In this guide, we’ll explain what types of cryptocurrencies there are, how they differ, and how to choose the right one for you.

Main Types of Cryptocurrencies: From Classic to Memecoins

Apart from being the first cryptocurrency, Bitcoin is also a kind of “digital gold” and remains an important part of the financial ecosystem. Created in 2009 by Satoshi Nakamoto, Bitcoin is intended as a decentralized alternative to traditional currencies, without any middlemen or government control.

Then there’s Litecoin, often referred to as Bitcoin’s “lighter brother.” Created in 2011 by Charlie Lee, it has a number of distinguishing features, including faster transactions and lower transfer fees. These cryptocurrencies are called classic because they are designed to facilitate financial transactions and innovation.

Why use classic cryptocurrencies?

1. Payments: They allow you to quickly and easily transfer money around the world.
2. Store of value: Since the supply of Bitcoins is limited, they can serve as a store of value.
3. Long-term investments: Classic cryptocurrencies have long proven themselves as reliable assets for long-term storage.

In this context, the types of cryptocurrencies are primarily classified according to their purpose: classic cryptocurrencies were developed to become financial instruments, but other types have their characteristics and applications.

Memcoins: what they are and why they are trending

Memcoins are a type of cryptocurrency that started as a joke project and suddenly became popular thanks to internet memes and an active community. Dogecoin and Shiba Inu are two of the most notable examples of cryptocurrencies that have evolved from funny memes to serious assets:

1. Dogecoin was created in 2013 as a parody of Bitcoin and depicts a dog that is popular as an internet meme. Today, it enjoys enormous social support and is expected to exceed $10 billion in market capitalization by 2023.
2. The Shiba Inu has become known for its cult status and sudden price increases, often as a result of social media attention or celebrity tweets.

Memcoins: What are they? —In short, they are cultural phenomena that are not driven by algorithms, but by internet communities and trends.

Importance:

1. Community: The success of memecoins often depends on the solidarity among their users.
2. Innovation: Although many memecoins are temporary phenomena, they raise questions about the role of the community in determining the value of cryptocurrencies.
3. Risk and return: Investing in memecoins always involves a high level of risk, but also the possibility of sudden price increases.

The main differences between classic cryptocurrencies and memecoins:

1. Purpose: Classic coins were created to improve transactions and financial systems, while memecoins are often created for entertainment purposes.
2. Liquidity: Traditional platforms often have greater liquidity due to their financial value and large number of users.
3. Popularity: Memecoins can quickly become popular due to viral content, but this is usually temporary.

What is the difference between the different types of cryptocurrencies?

Stablecoins are cryptocurrencies that are pegged to fiat currencies or other assets to ensure the stability of their value. For example, USDT (Tether) is one of the most popular stablecoins. It is pegged to the US dollar and is always worth around $1. This makes it an ideal instrument for transactions where stability is important.

Unlike other types of cryptocurrencies, whose prices can fluctuate widely, stablecoins are more predictable. This makes them suitable as a means of storing and exchanging value in times of economic uncertainty.

How stablecoins work:

1. Backing: Many stablecoins are backed by reserves of fiat currency or other cryptocurrencies, making them relatively stable.
2. Use cases: They are often used for payments in cryptocurrency ecosystems and in decentralized finance (DeFi) applications.
3. Transactions: Due to their stability, they are widely used for trading and as a medium of exchange on crypto exchanges.

Advantages:

1. Stability: Unlike other cryptocurrencies that are subject to large fluctuations, stablecoins offer predictability and stability.
2. Minimal fees: Transactions with stablecoins can be cheaper than traditional bank transfers.

Tokens and their role in the digital economy

Tokens are another important type of cryptocurrency. They differ from traditional currencies in that they are not independent currencies, but are part of a project’s ecosystem. For example, Ethereum uses tokens on its platform for a variety of purposes, from developing smart contracts to project management.

The difference between tokens and classic types of cryptocurrencies:

1. Tokens typically exist within a project or ecosystem and can be used for various functions, such as voting, making payments, or representing assets.
2. Blockchain: Many tokens are based on major blockchains such as Ethereum or Binance Smart Chain and can be used within smart contracts.

Examples:

1. ERC-20 is a token standard on the Ethereum blockchain that is used to issue tokens for various projects.
2. NFTs (non-fungible tokens) are another type of token that represent unique digital assets, such as art or collectibles.

How to choose a cryptocurrency to invest in: tips and recommendations

It is important to realize that each currency has its own role. Categorizing cryptocurrencies can help you better assess the risks and opportunities.

How to classify cryptocurrencies for investment purposes?

1. Stablecoins: stable, suitable for storing and exchanging money.
2. Altcoins: riskier, but also potentially profitable. These are cryptocurrencies such as Ethereum or Litecoin, which are in full development.
3. Memcoins: inherently risky, but can suddenly increase in value in response to trends.

How to choose the right assets?

If the goal is a long-term investment, Bitcoin and Ethereum are a reliable option. However, if you are looking for more dynamic and risky assets, such as memecoins or altcoins, then you should approach them with caution. However, do not rule out the possibility of high returns.

Conclusion

Each type of cryptocurrency comes with its own unique risks and opportunities, which directly depend on your goals. If you are looking for stability, stablecoins are the perfect option. If you are looking for exposure and quick money, memecoins can be an interesting and risky investment.