Litecoin Trading Basics

Technical Analysis

Technical analysis attempts to forecast future price movements by examining past market data.

Most traders use technical analysis to get a "big picture" on an investment's price history. Even fundamental traders will glance at a chart to see if they're buying at a fair price, selling at a cyclical top or entering a choppy, sideways market.

Most technical analysts make a few key assumptions:

  • All market fundamentals are reflected in price data. Moods, differing opinions, and other market fundamentals need not be studied.
  • History can repeat itself, often in regular, fairly predictable patterns. These patterns, generated by price movements, are called signals. A technical analyst's goal is to uncover a current market's signals by examining past market signals.
  • Prices move in trends. Technical analysts believe price fluctuations are not random and unpredictable. Once an up, down or sideways trend has been established, it usually will continue for a period.

Get in and get out - at the right time

Traders rely on price charts, volume charts and other mathematical representations of market data (called studies) to find the ideal entry and exit points for a trade. Some studies help identify a trend, while others help determine the strength and sustainability of that trend over time.

Technical analysis can add discipline and minimize emotion in your trading plan. It can be hard to screen out fundamental impressions and stick with your entry and exit points as planned. While no system is perfect, technical analysis helps you see your trading plan more objectively and dispassionately.

Litecoin Charts

There are three main types of charts that are used by most traders in the Litecoin market. Two of them, bar charts and candlestick charts, display basically the same information in a different visual mediums. The other type of chart, perhaps the most common in finance and trading in general, is the simple line chart.

Line Chart

Sometimes the line chart represents the day's average price for a particular currency pair. Still other times it is the closing price. It is useful for looking at long term direction of prices and for the correlation of a currency pair with other variables, such as commodity prices or trade defects.On most good websites, any number of different variables can be grouped together to see how they correlate in the real world.

The major strength of the line chart is that it is easy to read and spot directional changes. The major weakness is that there is no way to see daily price volatility.

Bar Chart

The next type of chart is the bar chart. Like most charts, it has two notches on it, one representing opening and one representing closing costs. The one on the left represents the opening cost, the one on the right represents the closing. The edges of each bar represent the highs and lows for the day.

There are few advantages that the bar chart offers over the candlestick chart, other than accessibility for first time chart readers. The candlestick chart offers all the same information, but in a manner that lets the reader who is familiar with the format pick up the information in a quicker manner.

Candlestick Chart

Candlestick charts are perhaps the most popular type of chart for the Litecoin market and Litecoin websites in general. They instantly let a reader know what's gone on that day and where the market has moved. For more information on how to read candlestick charts, see the article, “candlestick patterns.”

On any quality Litecoin brokerage website, these charts can be changed around to fit your specific needs. Candlestick and bar charts can usually be arranged so their units represent anything from one minute to one year.  Line charts can similarly be manipulated.

Charting services vary in quality, and a site's graphing capabilities are one of the most important features of a website.  There are also subjective qualities to charts. Some traders prefer different color schemes or other small details that make it easier for them to read the charts. In the end, you should choose the charting service that works best for you personally, keeping in mind that your need for complexity is going to grow as you become a more sophisticated trader.

Technical Indicators

Trend

Trend indicators smooth price data out, so that a persistent up, down or sideways trend can be easily seen. (Examples: moving averages, trend lines)

Strength

Strength indicators describe the intensity of market opinion on a certain price by examining the market positions taken by various market participants. Volume or open interest are the basic ingredients of strength indicators.

Volatility

"Volatility" refers to the magnitude of day-to-day price fluctuations, whatever their directional trend. Changes in volatility tend to anticipate changes in prices. (Example: Bollinger Bands)

Cycle

Cycle indicators indicate repeating market patterns from recurrent events such as seasons or elections. Cycle indicators determine the timing of a particular market pattern. (Example: Elliott Wave)

Support/Resistance

Support and resistance describes the price levels where markets repeatedly rise or fall and then reverse. This phenomenon is attributed to basic supply and demand. (Example: Trend Lines)

Momentum

Momentum indicators determine the strength or weakness of a trend as it progresses over time. Momentum is highest when a trend starts and lowest when the trend changes.

When price and momentum diverge, it suggests weakness. If price extremes occur with weak momentum, it signals an end of movement in that direction. If momentum is trending strongly and prices are flat, it signals a potential change in price direction. (Example: Stochastic, MACD, RSI)


LITECOIN TRADING SYLES

The Scalper

One can think of a “scalper” as an ultra short-term day trader.  These traders only hold a position for 30 seconds to a few minutes.  The profit targets for these very short-term trades may only be 5-10 pips, but if this can be accomplished 10-20 throughout a trading day, the scalper could profit by 100-200 pips, which is what a day trader might expect from one or two trades.  To trade at this ultra short-term level, a scalper rarely looks at charts with time frames higher than an hour, instead focusing on 15-minute, 5-minute, 1-minute and tick charts.


The Day Trader 

The typical day trader is usually in and out of a position within a day, although some trades may last 2 to 3 days at most.  An intelligent day trader won’t completely ignore monthly and weekly charts; however, these larger time frames are much less important and are only reviewed occasionally to establish the “big picture.”  Day traders establish their views based on daily charts (as they plan to be out of the trade by day’s end), and choose entry points based on 1-hour, 30-minute, 15-minute and even 5-minute charts.


LITECOIN TRADING TIP 2

Make use of Indicators to Identify Trends

You've probably heard the expression "the trend is your friend" - but what does it mean? If your trend takes a sudden counter-move and your trailing stop activates at a loss, it's natural to ask yourself: how can you be sure the next trend will be more friendly?

Confirm the trend is real

Using technical indicators in combination can help ensure a potential trend has staying power - a good habit for all kinds of technical trading, but especially in Crypto-currency. Currencies tend to move in trends naturally due to long-term macroeconomic factors and short-term international capital flows. All of this makes it that much harder to see a trade-able trend that will last.

Trendlines

From a trader's perspective, a trend is a predictable price response at levels of support or resistance that change over time. Trendlines mark these levels, with support acting as the "floor" and resistance as the "ceiling". When prices break through either of these levels, that signals a trend for that movement to continue.

It's easy to draw perfect trendlines on historical charts - but harder to be right when the trend is still developing. Still trendlines help focus your attention on finding support and resistance levels, the first step to identifying a new trend.

Start by drawing trendlines over longer timeframes (daily or weekly charts) and then carry them forward into shorter timeframes (hourly or 4-hourly). That way you'll highlight the most important support and resistance levels first and not lose the major trend development by chasing a short-term, minor one.

 

Moving Averages and Technical Trading

A moving average is a simple technique that lets chart-makers and analysts sift out a lot of the “noise” that short term price swings create.  A more common term outside of the Litecoin market that means the same thing is a “rolling average.”  You'll hear about the concept most frequently in public opinion polling when election season comes around and people want to be able to spot trends in voting behavior. 

To create a moving average, you take the values of a given currency pair over a certain period of time.  Let's say three days.  That figure is one point in the moving average line on your graph.  The next day, you drop off the last of those three days, and add in that day's numbers.

The benefit is a smoother line with less meaningless statistical noise if you had just made a trend line out of the daily averages.  Moving averages combine some of the short-term sensitivity of day-to-day averages, and some of the stability of a series of larger samples. 

Instead of taking an average of one period – let's say in this example one week – and just comparing it to the next week's data, the moving average let's you see not just the trend after the fact, but how the trend develops as it is happening. 

Fibonacci

The study of Fibonacci numbers, retracements and extensions will feel strangely “out there” for most Litecoin traders – as if trading profits can be found in Fibonacci like the future can be found in palm readings.  This is until one realizes that Fibonacci analysis actually works!

Fibonacci s work showed that there is a mathematical “order” that is found again and again in nature, describing everything from ocean waves to spider webs to snail shells.  As these mathematical relationships were observed too often to be considered random, it was determined there was some significance in them. 
Here are the only two facts a Litecoin trader needs to consider when evaluating the importance of Fibonacci analysis:

  1. Fibonacci determined there were certain ratios found everywhere in nature – and that these ratios were “significant”
  2. MANY Litecoin traders know and consider Fibonacci ratios
    It can be argued that Fibonacci ratios only appear to be significant in the Litecoin market because everyone pays attention to them – as if the collective attention given to the ratios becomes a self-fulfilling prophecy.  Does everyone look at Fibonacci ratios because they’re significant?  Or, are Fibonacci ratios significant because everyone looks at them?  The philosopher will try to answer this question – the Litecoin trader says, “who cares!?” and figures out how to use them to make money!

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