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In this post, we will review the basic concepts of technical analysis.
Technical analysis (abbreviated as TA) is an intellectual study that combines certain statistics and patterns in a way that should be discerned by the naked eye and human intelligence. If this eye is not properly trained, technical analysis may not be of much value or may be more like witchcraft. To better understand its importance, we must first learn the basic principles and components of technical analysis.
In this article, we have brought you everything you need to know to get started.
Technical analysis is the study of price action, chart patterns, trends, volume, indicators, etc. that analysts, investors, and traders can use to help predict future market outcomes.
Since this is a somewhat intellectual process, the patterns may fail or the results may end up being different. Therefore, only technical analysis can be used to increase the probability of earning profit and income; Not guaranteed.
In cryptocurrencies, technical analysis has various uses, all of which support trading and investing in crypto. For example:
Short-term and long-term price forecasting
Understanding the direction of trends
Find the key points that change the flow of transactions
Identify support and resistance levels
Discover price patterns
Anticipate possible outcomes
Developing and applying methods for capital protection
Measuring the sentiments of the crowd
Monitor the markets
Profit in price action
The idea behind technical analysis
The idea behind digital currency technical analysis
The idea behind technical analysis is that these patterns and signals actually represent human behavior on the price chart. Investors and traders are human, and even though there are many bots or algorithmic traders today that use automated charting signals, they still use patterns from the human past that still make up technical analysis.
Humans are highly emotional, especially when it comes to fear and greed. Fear and greed lead to price changes in financial markets as well as supply and demand. Greed fuels demand and fear opens up supply to the market. However, these human behavior patterns are predictable. Fear and greed lead to price movement in financial markets and supply and demand to a lesser extent
For example, according to Edwin “Sage” Cappack and his early research on managing his church’s investments, a bear market lasts about as long as it takes for a person to get over the loss of a loved one. These studies were conducted between 11 and 14 months. Bitcoin bottomed 11 months after its 2017 peak, and the new uptrend began exactly 14 months ago.
Technical analysis works better in crypto than in many other asset classes. Cryptocurrencies such as Bitcoin and Ethereum have been gaining more acceptance since last year. Stock prices are usually more responsive to fundamental changes in quarterly earnings reports. There is actionable data that analysts can use to evaluate stocks. On the other hand, the fundamentals of blockchain cryptocurrencies are still in their infancy.
Because intuitive assets like cryptocurrencies lack this fundamental feature of the stock market, investors must speculate about what will happen next. This also means that price changes and decisions are driven by human emotions even more than the stock market; Which makes digital currencies react effectively to the methods of finding price patterns and technical analysis.
Technical and fundamental analysis are both methods of finding the intrinsic value of an asset. Technical analysis focuses on price action, trends and more using technical indicators and oscillators, chart patterns, volume and more.
In traditional investment and trading, there is technical analysis and the other half of it is fundamental analysis. Fundamental analysis is divided into qualitative and quantitative categories. Qualitative is more about personal beliefs and gut instinct; Like buying shares of a company in a situation where you consider the CEO of that company to be a successful and powerful person.
In cryptocurrency, fundamental analysis rarely involves a single company and instead addresses the health of the underlying blockchain network. In chain analysis, trends in Bitcoin or other digital currency holders can be analyzed by examining wallets, amount of stored value, amount of movement in the network, and many other metrics.
This analysis never guarantees profit. Analysis is always much easier than being in the actual situation and executing a strategy. Markets move quickly and risk management should be given adequate attention.
Doing this can prevent unwanted capital reduction and guarantee profits. Otherwise, emotions can get the best of investors and traders
Just like anything you think about, practice makes perfect. Also, simplicity is better than anything. Those who are new to technical analysis are often confused by the large number of lines drawn and indicators used. T
Using as few tools as possible and relying on a handful of well-tested strategies will always outperform a noise trader with cluttered charts.
Also, we must not forget this important issue that this method is not a guarantee and is only used to increase the probability of success and provide data related to risk management and trends.
Technical analysis also requires continuous study and learning. A good technical analyst is like a detective who looks for new evidence and also has the ability to discard old information from the past.
After choosing an asset among digital currencies and learning the basics of technical analysis, it is time to learn the tools of technical analysis. But this is a topic that we will discuss in detail in a future post. Stay with us in digital currency.
