Understanding crypto market trends is absolutely essential for successful trading. There is an old trader’s saying stating that “the trend is your friend” and this holds true for crypto markets as well as any.
To put it simply – the trend is the way the market is moving in a certain time-frame. However, markets don’t usually move in straight lines. They move in zigzags, in waves of peaks and bottoms.
The direction of these peaks and bottoms is what defines a trend. When a series of successively higher or lower bottoms is formed on a certain cryptocurrency, we can say that a trend is forming.
Three types of crypto market trends
There are three types of trends. The first two are obvious – an uptrend and a downtrend. However, the third one is called sideways. Some also call it a trendless trend.
It is important to note that most technical analysis tools work best in either uptrends or downtrends. They are much less reliable in a sideways trading environment. Such trading situations can be very dangerous for your bankroll. Staying out of a sideways markets is often the best idea.
Time-frames of crypto market trends
The crucial thing for understanding and assessing crypto market trends are the time frames. As mentioned, trends consist of smaller waves of tops and bottoms. But if one would look even closer, these smaller waves also have sub-waves. There is thus as many trends as time frames. However, we can categorize them as major, intermediate and near term trends.
In crypto, market cycles are much faster than in traditional markets. There, trends can last for years or even decades. In crypto, on the other hand, you can describe a major trend as only lasting a couple of months.
It is thus hard to say what a market trend is for a certain cryptocurrency. It all depends on the time frame. If you do day trading, think twice when trying to counter trade the intermediate or major trends. However, if you go for long-term trades, do not heed smaller time frame movements.
Nevertheless, movements on smaller time frames can get very important. This is when successive tops or bottom get violated. When a series of successively higher lows or higher highs gets broken, a trend reversal may be taking place.
So, when the price of a certain cryptocurrency falls below the previous low in an uptrend (or makes a higher high in a downtrend), this invalidates a trend. Until new data comes in, you can’t be sure if there is a new trend forming or if we’re heading into trendless territory. It may even turn out that it was only an anomaly and that the trend will continue.
Using Heikin Ashi candles to spot reversals in crypto market trends
Heikin Ashi candles are a great and powerful tool to determine the trend of the market. Their structure is somewhat complicated so let’s keep things simple. Only when Heikin Ashi candles start turning green can we start thinking of safely longing bitcoin. Pay attention to the red doji stars, they are the first harbingers of a possible trend reversal.
You can choose the Heikin Ashi candles on Tradingview or Coinigy (both further described here) if you click on the candle icon in the upper left corner.
Always trade in the direction of the trend
When entering trades, it is very important to discern the trends in different time frames. You can choose appropriate targets, stop-losses, important price zones and so on. If there would be one rule for trading cryptocurrency, it would be the following: keep your trades inside the major or at least intermediate trades. If you counter trade them, your chances for successful short-term trades will be much lower.
As they say, THE TREND IS YOUR FRIEND.