Human and trading behavior are the same no matter what the market in question is (government bonds, forex, stocks and the list goes on). The market participants, as well as the asset characteristics may differ, though. This is what gives every market a unique “personality”. Keeping that in mind, let’s contemplate whether technical analysis is useful in trading cryptocurrencies.
Cryptocurrencies are a very young market compared to the stock market or gold. This affects the validity of 5-year charts, i.e. lessens the quality of technical analysis, especially in the longer time frames.
I dare to say that most people involved in cryprocurrency trading are in for the quick buck, which can create excessive swings and false signals at times. Many traders still debate about the staying power of cryptos and this can definitely influence people’s perceptions and lead to panic selling in times of financial turbulence. In fact, most traders still do not understand what factors determine their supply and demand for cryptos, while the newsflow that really matters seems quite tricky to obtain and assess.
The smaller the capitalization or volume of a crypto, the harder it may be to trade it successfully compared to the likes of, say, Bitcoin or Ethereum. Remember, technical analysis signals can be relied upon more when volume information is taken into consideration.
Overall, I believe that technical analysis is superior to other schools of market analysis when it comes to cryptocurrencies. I am sure that the biggest crypto traders on the planet do use technical analysis when trading, so retail traders can somehow improve their performance by adding technical analysis to their arsenal.