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Bitcoin Trading – Technical Analysis Roadmap

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Learning how to read crypto charts is an essential skill for anyone interested in trading Bitcoin successfully. At first glance, trading charts can seem like a foreign language. All the confusing lines, shapes, and colors can make it seem very intimidating for beginners. Additionally, learning technical analysis requires that you begin to learn the jargon associated with trading.

Luckily, crypto trading is very similar to stocks. In fact, the only real difference is the asset. Both assets utilize the same fundamentals. You can study up on some of the greatest stock traders in the world, and you will give yourself an amazing edge in the market.

Remember, trading isn't about being different. It’s about understanding the psychology of the market. In other words, you don’t need to reinvent the wheel. At first, you will see more success by following the path of established traders that have practiced this skill for years.  The great news is that once you understand how to trade Bitcoin, you can trade a vast array of assets classes.

Step one on your journey to becoming the ultimate Bitcoin trader is to get familiar with the basics of trading. You will need to familiarize yourself with the key theories and terminology used today. You will also want to have a firm understanding of different chart types and pattern recognition.

Luckily, in terms of trading, market history has a tendency to repeat itself. Consequently, analysis allows you to recognize these trends and use them to make an informed decision on the market movements of the future.

Dow Theory Strategy

The Dow Theory is a strategy developed by Charles H. Dow., hence its name. Dow, along with Edward Jones and Charles Bergstresser, founded Dow Jones & Company, Inc. The trio went on to develop the Dow Jones Industrial Average in 1896.

Charles Henry Dow - Trading Bitcoin Part 2

Charles Henry Dow – Trading Bitcoin Part 2

The Dow Theory provides you with valuable insight into market movements. It states that the market price takes everything into consideration. Every factor including outside developments and all prior, current, and future details combine to establish the market value of an asset.

This theory means that as an experienced trader you must be able to monitor multiple variables in the market. You will learn to understand the current, past, and future demands of your asset community. This learning must come from a constant gathering of information and market news. You should always pay special attention to any future regulations.

The Dow Theory means that all price movements are not random at all, quite the opposite. Price movements follow larger trends. These trends can be broken into two categories – short and long term trends.

Bitcoin Market Analysis

In technical market analysis, you focus on a coin's price specifically. This strategy requires you to utilize technical indicators and ignore outside variables contributing to the price. In this way, you are able to remove emotion from your decisions.

6 Tenets of Dow Theory

3 Market Movements

Main Movement – The main movement is the major trend currently underway. This trend is going to encompass years of market activity. For example, the main movement in Bitcoin is bullish if you look at the complete trading history of the asset. However, it's important to understand that the main movement can be either bearish or bullish depending on the time frame included in your analysis.

Medium Swing – A medium swing is a secondary market reaction. This reaction can last for up to three months. Medium swings include price retraces. A retrace is when Bitcoin's market movement begins to return to its original state prior to the market activity. In most instances, a retrace will return to 30% – 60% of the original market value.

Short Swing – Short swings are daily price fluctuations. A short swing can last up to a month in some scenarios. These minor movements occur due to market speculation. As such, Bitcoin experiences short swings throughout the week on a regular basis.

3 Market Phases


The accumulation phase occurs when knowledgeable investors receive some sort of valuable information that relates to them a significant change in market conditions. This information could include knowledge acquired from inside the company or from other avenues that could affect the market. In either case, the results are the same. These investors begin buying or selling their assets in a bid to position for the news.

Notably, this phase is difficult to detect as the market movements are minimal. The reason for the miniscule market adjustments is that the majority of investors are not privy to the information the first movers received. Since only a small number of people have access to this information, these sales go unnoticed amongst the daily trading volume.


Absorption occurs when the general public begins to take notice of the market trend emerging. This participation leads to more market activity. Consequently, more investors jump on board the movement. Eventually, this scenario leads to speculation fueled by FOMO (fear of missing out).

Here is where emotions play a major role in dictating the market's behavior. If the market is tanking, investors will get scared and panic sell their Bitcoin further fueling the price drop. Opposingly, if Bitcoin's value begins to rise steeply, a rush of new investors enter the market attempting to catch the next bull run.


In this phase, early investors begin to reintroduce their accumulated holdings to the public. These investors already realized a profit and now they are exiting their positions before the trend reverses. This exit causes the emergence of a swing that creates a price retrace in the market. Untrained investors are left with the holdings of those that were ahead of the trend.

Markets Discount News Immediately

The market reacts instantaneously to all information regarding an asset. This reaction encompasses all the data surrounding the investment. The value of your asset reflects the sum of all the hopes, fears, and expectations of all the market. News such as future regulations, major institutional adoption, and the introduction of new financial products all play a major role in the pricing of Bitcoin.

Mt.Gox Investor After 650,000 BTC Go Missing

Mt.Gox Investor After 650,000 BTC Go Missing

Additionally, non-Bitcoin related issues can affect the price of your asset. Occurrences such as major elections can cast doubt on the stability of an asset in the future. This scenario is especially true when speaking with new unregulated assets such as Bitcoin. Also, major events such as war, natural disasters, or pandemics affect the market value of assets as well.

Volume Confirms Trends

The volume of an asset is the amount of market activity it experiences. In the case of a bull trend, you should notice jumps in the trading volume. This price raise should correspond with a spike in market volume. When you see price jumps without corresponding upticks in volume, it's usually a sign of what's known as a pump. In a pump, large investors manipulate the price of an asset using their weight to initiate price trends.

Trend Reversals

This rule states that a market in motion will remain in motion until a trend reversal occurs. Basically, if you notice a large scale trend, you can expect that the trend will continue until you notice the start of another accumulation period by educated investors.

Unfortunately, it can be very difficult to successfully determine when a trend reversal is underway. The market will always have small and medium swings. These movements can make it extremely tricky to verify if a movement is actually the start of a reversal. A careful evaluation of all outside trading factors can help you to make the right choice in these situations

Bitcoin Technical Analysis

Technical analysis requires you to utilize a combination of tools to predict if the price of Bitcoin will rise or fall. Importantly, technical analysis provides you with more insight into the market. Consequently, the better you are at it, the more success you will have trading. Here are some key concepts you need to understand to simplify your technical analysis.

Bitcoin Chart Time Frames

You need to understand the timeframe windows and how their use will affect your analysis's results. These are the most popular time frames available on Bitcoin exchanges today

  • 15 Min
  • Hourly
  • 4-Hour Chart
  • Daily Chart

The time -frame you use depends heavily on your trading style. For example, if you are a day trader, you will use hourly, all the way down to the minute trading window. The reason for this decision is simple. You need the most up-to-date information because you are conducting micro trades.

Bitcoin Day Trading

Day traders can open and close their trading position in minutes. Additionally, they can trade continuously throughout the day. Some traders make 50+ trades a day. For these actions, you need up to the minute analysis.

Bitcoin Long-Term Traders

The situation is reversed for long term traders. These traders prefer to hold their position for months and even years. In some cases such as with HODLers (hold on for dear life), they may never intend to sell their Bitcoin holdings.

Long term traders depend on long term trends. These traders need to examine months of data at the same time to get a better overview of the larger trends. It does long term traders no service to examine the smaller fluctuations in the market. In fact, it can be counterproductive as it could cause the trader to second guess their decision.

Bitcoin Market Cap

You only need to be involved in the crypto market for ten minutes before you hear someone mention “market cap.” The Bitcoin market cap is the total amount of coins in circulation X the price of each coin currently. Consequently, the market cap tells you a lot about a particular asset.

Market Cap via CoinMarketCap

Market Cap via CoinMarketCap

You can examine the market cap to gain a deeper insight into the stability of an asset. Websites such as provide you with real-time analytics in the form of a line chart. You can use these charts to spot trends in the market. In the case of Bitcoin, you will notice that over the last 9 years the asset has gained considerable value.

Bitcoin Candlestick Charts

Candlestick charts are the most popular style of chart used in the crypto space today. At first, these charts can seem as strange as the controls of an alien spacecraft to the untrained eye. However, it only takes a few minutes to understand these remarkable trading tools.

Candlestick Chart - Binance Trading Window

Candlestick Chart – Binance Trading Window

Candlestick charts provide you with a plethora of information at just a glance. You will notice the red and green candlesticks are laid in succession. Importantly, each candle shows you the price movement of an asset over the selected timeframe.

How to Read Bitcoin Candle Sticks

Candlestick charts provide you with everything you need to know to understand the current state of the market value of an asset. You can see the opening and closing prices, the daily high and low, and you can decide on what time intervals you what this information displayed.

A green candlestick indicates that Bitcoin closed higher for the time period than its opening value. Anytime you see a red candle, it indicates there were some losses incurred by the asset. In this way, it’s easy to monitor market activity, even from your phone.

In most candles, you will notice there’s a body. Where the main body of the candle begins is the opening price for the day. If the candle is green, the opening price will be the bottom of the candle body. If the candle is red, the body's top will let you know the opening price.

You will notice that the top or bottom always lines up with the proceeding candle in the chart. This alignment represents the close and opening of the next trading day. This time can varies depedning on the trading interval you choose.


There are also small lines sticking out from the top and bottom of the candle. These lines are known as shadows. Shadows represent the high and low for the day. In this way, you can ascertain an incredible amount of information from a candlestick chart in seconds.

This data can then help you to make a timely investment decision. Certain candles can indicate the start of trends. Consequently, an entire terminology has emerged surrounding these indicators. Here are the most common candlestick indicators you will see when trading Bitcoin.

Candlestick Cheat Sheet - Jbmarwood

Candlestick Cheat Sheet – Jbmarwood


A hammer candle can indicate a bullish reversal is about to occur. The candle shows that when the market opened, sellers forced the price to drop steeply. This downward pressure was met with stronger buying pressure. This pressure resulted in a shift in momentum.

Importantly, the momentum was pushed back down a slight bit, but not before the day closed. Hammers are easy to spot because they contain a shadow that is sometimes 3x as long as the body of the candle. Hammers let you know that buyers are in the market and they are controlling the price action for the day.

Falling Star

The falling star candle is the opposite of the hammer candle. When you see these candles it means that the buyers had control of the market when the day opened but before the close, their gains were erased by strong bearish pressure. In turn, you can predict that more selling pressure is entering the market. Falling stars have very small lower shadows with the upper shadow accounting for the majority of the candle.

Bullish Engulfing Pattern

A bullish engulfing pattern again signifies that buying pressure is strong in the market. In this 2-candle pattern, you see that the sellers forced the price down the day prior. The following day, sellers regained control and dwarfed the losses the bears introduced the day prior. This pattern shows a bearish candle followed by a larger bullish candle.

Bearish Engulfing Pattern

Reversely, the bearish engulfing pattern lets you know that sellers are entering the market in droves. The first candle in this pattern will show gains from the day prior. The next candle in this pattern will reverse the gains and show even stronger losses.

Morning Star Pattern

A morning star pattern utilizes three candles to determine market trends. A morning star is a bullish reversal pattern that shows a struggle ensuing between buyers and sellers. On day one, you see that sellers had full control over the market. This sales pressure was countered on day two and reversed on day three.

Evening Star

The evening star pattern is the opposite of a morning star. Here you see that buyers get exhausted after two days of pressure. On day one, the buyers were able to control the price. On day two there advancements were met with equal pressure and by day three, they lost control of the market. You can easily spot star trends because they have no body because the pressure on both sides of the market was equal. The morning star candle indicates that sellers are now in the backseat and bulls are in control. Evening Stars show that bears run the market currently.

Relative Strength Index

The Relative Strength Index (RSI) is a mathematical formula used to measure the current of the market.  The formula takes the strength and speed of a market’s price movements and compares them to others that occurred previously. The formula reads as:

RSI = 100 – (100/(1-RS))

By comparing the current and past market fluctuations, as well as the magnitude of recent gains to recent losses, the RSI attempts to establish if an asset is overbought or undervalued. An overbought asset will usually depreciate in the near future. An undervalued asset will go up in price as its intrinsic value is realized.

RSI - Investopedia

RSI – Investopedia

RSI Disclaimer

As with any charting tool, the RSI is not 100% accurate, no trading tool is. This means that you must use this tool in conjunction with other indicators to improve your results. RSI indicators are prone to false buy and false sell signals. These can occur when there is a pump or flash sale in the Bitcoin market.

Reading the RSI

The RSI chart shows a line graph that ranges from 0 to 100. A score of 70+ indicates an overbought asset. This indication could signal a price drop. Reversely, a score of 30 demonstrates an undervalued asset. This score means there is a good chance the asset could experience a price rise.

Bitcoin Support and Resistance Lines

RSI is important but it's not the only tool that you use to trade Bitcoin. You will also want to understand support and resistance lines. Think of these invisible barriers as predetermined levels of the price of an asset at which trend reversal usually occurs.

Determining support and resistance levels is easy. Just look for points on the chart that you see multiple touches of price without a breakthrough of the level. Whenever the asset meets these barriers it is either pushed away or it breaks through to the next support/resistance levels. When a support level is broken, it indicates that the market has reversed its flow. Additionally, support levels can help you to determine where the price of Bitcoin might bounce back.

For example, if Bitcoin has a support level at $8500, it will be harder for Bitcoin to increase past this price if it’s below that level. This is what's known as a resistance level. If Bitcoin was over the price of this level, it would then serve as a support line. When the line is definitely broken, it signals major market movements.

Bitcoin Market Psychology

Successful traders need to grasps the main psychology of the market to remain effective. Understanding the minds of other traders helps you to better predict how the market will reflect certain developments such as new regulations. There are three main types of trading psychologies at work in the market today.

The first type of trading psychology is that of long traders. These are individuals that buy their assets and plan to hold them until the price rises at a much later date. At that point, they will resell their assets and take their profits. You also have traders who go “short”. These are traders that expect Bitcoin's price to fall in the future. These traders often incorporate other financial instruments such as leveraged futures to maximize their profits. Lastly, you have your average trader. This is the trader who doesn't have the insight to make a determination of the market's fluctuations. This category contains most new traders.

Summary – Mastering Bitcoin Trading

Now that you have a firm understanding of the key components in trading Bitcoin, you are ready to start your trading adventure.

David Hamilton is a full-time journalist and a long-time bitcoinist. He specializes in writing articles on the blockchain. His articles have been published in multiple bitcoin publications including