What is Technical Analysis?
Technical analysis is a trading discipline used to evaluate investments and identify trading opportunities by looking at past price movements, analyzing and then forecasting statistical trends collected from trading activities such as volume. Technical analysis, often referred to as charting, is a type of analysis that aims to predict future market behavior based on previous price movement and volume data. The technical analysis approach is comprehensively applied to stocks and other assets in traditional financial markets, but it is also an integral component of digital currency trading in the cryptocurrency market.
Unlike fundamental analysis (FA), which considers multiple factors related to the price of an asset, TA focuses strictly on historical price movement. Therefore, it is used as a tool to study the price fluctuations and volume data of an asset, and many traders use it for the purpose of identifying trends and appropriate trading opportunities.
Technical Analysis Strategies for Beginners
Most investors analyze stocks based on their key characteristics, such as their income, valuation, or industry trends, but they are not always fundamentally reflected in the market price. Technical analysis tries to predict price movements by examining historical data, mainly price and volume. Utilizing techniques such as statistical analysis and behavioral economics, it helps traders and investors navigate the gap between real value and market price. Technical analysis helps guide traders on what is most likely to happen given past information. Most traders use both technical and fundamental analysis to make decisions.
Technical Analysis Indicators
Indicators are used by technical traders when looking for opportunities in the market. Despite the fact that multiple indicators are available, traders often benefit from volume and price based indicators. These help determine where support and resistance levels are, how often they are maintained or breached, and determine the length of a trend.
A trader can see the price or any other indicator using multiple time frame analysis ranging from one second to one month, which gives the trader a different perspective of the price movement.
More popular indicators for technical analysis include:
1.Moving Average Weighted (MAW)
The moving weighted average is used to measure the overall feeling felt in the market in general. This is done by analyzing price fluctuations in the formation of short-, medium- and long-term moving averages. A moving average is calculated by averaging data points over a period of time.
2.Relative Strength Index (RSI)
The RSI is a ‘momentum indicator’. It works by comparing the magnitude of recent growth to recent downturns to gauge the speed and change of price movements. It oscillates from 1 to 100. There is a general belief that the RSI must be below 30 for buying and above 70 for selling.
As a result, the lower the RSI, the lower the asset, the higher it is, the higher the asset.
3.Williams Fractal
This is a momentum indicator and is based on the ADX formula. While the ADX can help you dive into the micro, the Williams Fractal is a great indicator for a quick macroscopic view of momentum trends.
This oscillating indicator shows the strength of both upward and downward movement in an asset’s price.
Fundamental Analysis and Technical Analysis
Many investors confuse the two terms or use them interchangeably. Technical analysis and fundamental analysis in crypto.
Fundamental analysis is based on the idea that the price of an asset is determined by fundamental factors such as the company’s performance, management, and market size.
On the other hand, technical analysis does not take into account any economic or fundamental factors. It is completely focused on the chart and indicators such as RSI, MACD and candlestick patterns.
