Tracking Momentum in Cryptocurrency Markets with Channel Analysis

In the world of technical analysis, trading volume is a classic momentum indicator. Volatility in the cryptocurrency markets causes investors to keep a close eye on momentum, and this is many active traders use channel analysis to avoid getting caught on a long position when sentiment works against them.

Channel analysis indicates when there is a likelihood that buyers are stronger than sellers, or vice versa. The channel, which forms because of the number of buyers or sellers, and the size of the trade, gives insight into the strength of one side over the other. Buyers (in the upper portion) or sellers (in the lower portion) have more room to push and move price action. Because the lower channel and upper channel converge and then diverge, they create price patterns called head and shoulders.

When the lower channel (or trendline) and the upper channel are more than a half-unit apart, that's when the two trends are more than halfway through their ranges. This usually indicates that the next move up or down is the most compelling in terms of the direction of the market and the size of the move. The breakout The breakout occurs when the channel closes above a moving average. This may occur at the same time the price closes above or below a moving average.

An example of how channel analysis can keep investors away from losing trades took place on June 23 with the fall of the privacy-oriented Monero token, which reached a high price level before starting to plunge. On that day, the channel was broken down, and the price is now trading below the channel trendline. There are many questions regarding the continuation of the downtrend, but the most important of them is the following:

If the price of Monero drops excessively over the next few weeks, will we witness the re-entrance to the bullish market or not? And if so, what will happen? Since the price of Monero has been trading in the middle of the channel between the trendlines. After each decline, the price is approaching the channel line, and this should tell you not to go long for the time being.