Technical analysis turns raw price and volume into structured trading decisions. In crypto’s 24/7 markets, you’ll get the most mileage from a workflow that combines pattern recognition, a small set of robust indicators, disciplined risk controls, and evidence-based validation to avoid common statistical traps. Academic work shows that certain rules can have conditional value, but results degrade without rigorous testing and controls for data-snooping, so treat TA as a probabilistic framework, not a crystal ball.
How crypto market structure reshapes technical analysis
Crypto trades around the clock with pronounced intraday and weekly cycles in volume and volatility. Research finds systematic hour-of-day and day-of-week patterns across centralized and decentralized venues; liquidity and volatility peaks align with major trading sessions. These cycles affect breakout reliability, indicator thresholds, and slippage.
Liquidity conditions also vary across exchanges and over time; depth and spreads change meaningfully with sentiment and participation. When you evaluate a setup, anchor it in current market depth and spreads, not just the chart pattern.
High-value chart patterns (and how to measure them)
Classical pattern reading still provides a shared vocabulary for price structure. Focus on patterns with clear confirmation rules and measurable targets.
Head and Shoulders (tops and bottoms)
Confirmation occurs on a decisive break of the neckline. A common target is the vertical distance from head to neckline projected from the breakout point. Long-running pattern manuals and modern tests document these rules, along with nuances like neckline slope and symmetry affecting outcomes.
Triangles, flags, and wedges
Continuation patterns compress range before trend resumption. Many traders estimate targets by adding the prior impulse (“measured move”) to the breakout point, while watching for false breaks during low-liquidity hours.
Candlesticks: treat as context, not standalone signals
Empirical studies repeatedly find that many named candlestick formations have weak standalone edge, including in crypto. Use them to refine entries around a broader setup rather than as primary signals.
Indicator toolkit that earns its keep
You do not need dozens of lines on the chart. Combine a few complementary tools: a trend filter, a momentum gauge, a volatility measure, and a volume/flow anchor.
Moving averages and crossovers
Simple and exponential moving averages smooth noise and define bias. The well-known 50/200-day “golden cross” or “death cross” are trend filters rather than timing tools; treat signals as lagging, and confirm with other evidence.
MACD: momentum from moving averages
MACD subtracts a longer EMA from a shorter EMA; a 9-period EMA of that difference acts as a signal line. Use it to gauge momentum inflections within the established trend.
RSI and Stochastic: oscillators for overbought/oversold
RSI, created by Welles Wilder, oscillates from 0 to 100 and is often read at 30/70 thresholds; adapt levels upward in strong uptrends and downward in strong downtrends. Stochastic measures close relative to the recent range; the slow version smooths signals with %D as a moving average of %K.
Bollinger Bands: volatility-adaptive envelopes
Bands wrap a moving average with standard-deviation envelopes, helping identify squeeze conditions and expansions. The tool is descriptive, not predictive; combine with non-correlated indicators for decisions.
ADX/DMI: trend strength
ADX, part of Wilder’s Directional Movement system, quantifies trend strength regardless of direction. Rising ADX supports trend-following tactics; low ADX warns of rangebound whipsaws.
ATR: volatility for stops and sizing
Average True Range measures typical movement including gaps; it powers volatility-based stops and position sizing. ATR-based exits like the Chandelier Exit trail trends while filtering noise. (chartschool.stockcharts.com)
VWAP in a 24/7 market
VWAP anchors intraday price to volume. Because crypto lacks a formal session close, many traders treat midnight UTC (or exchange-defined session boundaries) as the reset; anchored VWAP can specify any start point. Always confirm how your platform computes VWAP.
Volume Profile and Market Profile
Volume Profile maps traded volume by price to reveal value areas and high-volume nodes that often act as support or resistance. It complements time-based profiling from legacy futures markets.
A repeatable trading workflow
1) Frame the market
Identify higher-timeframe trend with moving averages or Ichimoku; mark support/resistance and any maturing patterns. Ichimoku’s components provide forward-projected structure and momentum context.
2) Define your trigger and confirmation
Examples include a triangle breakout with volume expansion, MACD cross in the trend direction, RSI leaving a squeeze, or ADX rising from sub-20 toward trending conditions. For head-and-shoulders, enter on a close beyond the neckline and project the measured move for targets.
3) Place stops and targets with volatility logic
Use ATR to size stops beyond local noise. A common recipe is stop distance as a multiple of ATR, initial target at one to two times the stop distance, and a Chandelier Exit to trail winners. Adjust for current liquidity and spreads.
4) Position sizing that survives variance
Volatility-based sizing ties trade size to ATR so that each position risks a fixed account percentage despite changing market conditions. It is widely used in professional risk management.
5) Respect derivatives mechanics
If you trade perpetual futures, incorporate funding into your expectancy and execution windows; funding payments move between longs and shorts to anchor perp prices to spot, with exchange-specific caps and formulas.
Validating your edge without fooling yourself
Backtests that ignore transaction costs, slippage, and multiple-testing will overstate edge. Use walk-forward testing, apply White’s Reality Check to control for data-snooping, and evaluate performance with the Deflated Sharpe Ratio to adjust for short samples and non-normal returns.
Example playbook you can adapt
- Scan for contracting ranges or classical patterns on the 4H and Daily charts.
- Confirm trend strength with ADX; avoid fresh breakouts when ADX is very low unless you expect a volatility regime shift.
- On the 1H/15m, wait for trigger: e.g., price holds above VWAP after a breakout and MACD turns up.
- Size the position so that Account Risk ÷ (ATR × multiple) equals position size; place stop beyond the structure or a 1.5–2.5× ATR buffer.
- Trail with a Chandelier Exit; scale out near measured-move objectives or prior volume nodes.
Common pitfalls to avoid
Relying on candlestick names without context, optimizing indicator settings to history, and ignoring crypto’s time-of-day liquidity cycles are frequent reasons strategies fail out of sample. Favor simple, transparent rules and validate them across exchanges and regimes.
Frequently asked questions
Which indicators work best for crypto?
No single indicator dominates across regimes. A practical stack is trend (moving averages or Ichimoku), momentum (MACD or RSI), volatility (ATR, Bollinger Bands), and execution anchors (VWAP). Each contributes different information, and several are well-documented in primary sources.
Are golden/death crosses reliable timing signals?
They are lagging filters. Treat them as context for bias and manage entries with faster tools and structure. Historical market commentary and data show mixed short-term timing value.
Do candlestick patterns work in crypto?
Evidence suggests many named patterns have limited standalone predictive power; use them as secondary confirmation within a broader setup.
How should I set RSI thresholds for 24/7 markets?
Default 30/70 levels are a starting point, but trend and volatility regimes matter. In strong trends, readings can remain extended; combine RSI with trend and volume context.
How does funding affect technical setups on perps?
Funding is a periodic payment between longs and shorts designed to keep perp prices near spot; high positive funding can signal crowded longs and vice versa. Incorporate expected funding into holding windows and risk calculations.
