Cryptocurrency trend lines - what are they and how do you use them?
When you’re trading cryptocurrency, no matter what your strategy is, the trend line should be one of your most used tools. Trend lines can be used with a wide variety of strategies and indicators, and they help you to see the big picture.
What exactly are they though and how do they work? What cryptocurrency trading strategies can you use trend lines with? We’ll talk about all of that and more in this article.
What are trend lines in crypto trading?
Trend lines are used by pretty much all traders whether they trade crypto or not. Using trend lines is sort of like a game of connecting the dots. You draw a line connecting different price points on the chart and then you use the lines you’ve drawn to try to figure out which way the price of the asset will go next.
How do trend lines work?
Trend lines require a bit more work than some indicators. In most cases you’ll need to draw them yourself. However, some trading tools like the one that Bitsgap has will allow you to draw right on the live chart.
Trend lines typically chart the resistance and support levels of an asset. This means you’ll draw one up top and one underneath in order to see where exactly the price tends to return to. This usually gives you a pretty good baseline of where you should be buying or selling.
How to read crypto trend lines?
When reading the trend lines you’ll want to look for the “slope”. This is your indication as to which direction the price will probably move. An uptrend line will show that there is a positive slope.
This means that you’ll likely see the cryptocurrency price go higher. Keep in mind that you should have at least three connecting points resting on the trend line before you should consider it valid.
Conversely, a downtrend will do the opposite. This slope tells you that the price of the asset will be descending, and you should plan accordingly for this reality.
Can trend lines be used for cryptocurrency predictions?
Yes, many people do use trend lines to try and predict the price of a cryptocurrency in the future. However, you need to be careful here. Trend lines have a habit of changing quickly and people who are too sure of their lines could be in for a nasty surprise.
It’s also important that you zoom out and see the bigger picture. If you don’t then your trend line could end up being very wrong when you look at the longer trend. If you want to use trend lines, then you will likely also want to confirm your suspicions with other indicators too.
Trend line example
Jimmy is trading a particular cryptocurrency and he wants to know in which direction it will likely head. He decides to use his Bitsgap account to plot trend lines.
Jimmy goes to the asset in question and he starts to draw. He carefully traces the peaks and bottoms of the asset over the past month, and he draws a solid trend line on both sides. He now knows exactly where the asset has risen and fallen over a 30 day period.
Using this information he tries to decide which way the token will go now. He sees that there are three strong connections indicating that an uptrend may occur. He takes the chance and buys in, hoping to make a bit of profit.
Within the next few hours, he sees that his trend line was correct. He collects a small profit and looks for his next opening so he can buy back in and do it again.
What indicators can be used to calculate the trend lines?
The Moving Average indicator helps you to filter out the noise in your cryptocurrency trading. It helps you to see the real average price when the abnormalities are gone and it can be a good indicator to use with trend lines to confirm that you’re making a good trade.
Relative Strength Index (RSI)
You can use the RSI in conjunction with drawing trend lines to determine exactly how strong your resistance or support levels are. This helps you to be more sure that the trend will perform as you think it will.
How to draw cryptocurrency trend lines?
In order to draw cryptocurrency trend lines, you’ll need a tool to do so. You can use Bitsgap’s tool for free to draw right on the chart of numerous live crypto exchanges. This allows you to do everything in just one tab.
When learning to draw trend lines it may help to look at some example pictures. However, your job is to trace the dips and peaks. One line across the top and one line across the bottom. This helps you to identify just how low an asset dips and just how high it peaks over a certain time frame.
Trend lines practice in demo mode
If you’d like to get a little experience with cryptocurrency trend lines before risking your own money then Bitsgap also has a great demo tool available! You’ll be able to draw right on the live chart and make practice trades in real time, but you won’t have to risk any money.
This can help you to practice all of your technical analysis and indicators without losing any capital to do it. When you’re ready to move on to real money you can easily switch and start trading for real.
Trend lines vs moving averages
While moving averages and trend lines can both help to identify crypto trends, the moving average tends to do a better job. This is because it filters out any abnormalities and helps you to see the real average. However, it’s easier to use trend lines to see a pattern over a long period of time.
You should honestly try to use both. Start by drawing a trend line and then use the moving averages indicator to confirm your suspicions. You can also pair it with RSI to see just how strong the support is for your suspected trend.