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Technical analysis is one of the methods of price analysis using charts in financial and digital markets. Traders use the best technical analysis charts and future price changes to make a profit in their trades. Unlike fundamental analysis, which is based on media, news, influential people, etc., in technical analysis, the price is determined by mathematical indicators and interpretation of charts.
Attention: Technical analysis without fundamental analysis will be an incomplete analysis. Therefore, it is suggested not to rely on the results of this analysis alone for investment.
Read more: Fundamental analysis
By teaching digital currency technical analysis step by step and using the best technical analysis method when buying and selling digital currency, traders can achieve profitability. To work with this method, various tools are used, such as line charts, candlestick charts, etc.
Basically, the methods used in technical analysis are not scientific; This means that the buy and sell signal generated by this analysis is not correct in all cases and may be wrong in some cases. Using technical analysis without fundamental analysis is just playing with numbers and pure mathematics and will not be practical.
Therefore, to get the best results in the financial markets, both analyzes should be used together. In the rest of this article, I will discuss the different concepts in the best technical analysis method and digital currency technical analysis training from zero to one hundred.
Download the technical analysis book
the writer: Thomas Myers
Translation and adaptation: Farhad Moghadam Salimi
What is technical analysis?
Technical analysis is one of the methods of analyzing financial markets such as the digital currency market. This type of analysis uses trading tools and charts to investigate market behavior and predicts based on previous price movements and market trading data.
Traders usually use this analysis along with fundamental analysis to analyze the price behavior of Bitcoin and other digital currencies.
Read more: Bitcoin price depends on what factors?!
By using trading records, analyzing currencies and focusing on market charts and data, traders identify patterns and trends and thus predict the future of the market. According to Dow Jones theory, technical analysis is based on three foundations:
- Price is the main pillar of technical analysis and everything is summed up in it. Price movements represent the supply and demand of the market.
- The price has long-term, short-term and medium-term trends.
- The past and price trends will repeat themselves. Digital currency analyzers are able to predict future market movements with the help of patterns formed on the charts in the past.
In general, with the aim of selling financial assets or selling digital currency at a higher price in the future and making a profit, investors want to buy it at the price floor. By using technical analysis before entering a position in the market, it is possible to identify suitable price levels.
Of course, every trader uses different indicators based on their preferences and needs. Of course, it should be noted that no technical analysis is useful on its own, nor is it 100% certain.
History of technical analysis
The first use of technical analysis methods is related to Amsterdam in the 17th century and Japan in the 18th century. The founder of the Wall Street Journal and the creator of the Dow Jones Industrial Average, Mr. Charles Dow introduced technical analysis.
Mr. Dove was one of the first people to understand similar behaviors among certain assets; Behaviors that followed a certain trend line. The Dow Theory was actually his achievement, which is the basis of today’s technical analysis.
In the first years of the advent of technical analysis, all calculations were done manually and with primitive methods on paper sheets. With the advancement of technology and the emergence of powerful computer tools for complex and modern calculations, technical analysis expanded faster and is currently considered one of the most important tools for a large part of traders and investors.
Where did the idea of technical analysis come from?
All traders and investors are human and they analyze or predict many events during the day. The person who treated us harshly, did he have any enmity with us? The departure time of the bus is 5, if there is a delay, will we reach the destination on time? The price of gold is lower today, will it be higher tomorrow? All these kinds of questions that pass in our mind are considered a kind of analysis that we do unconsciously.
Usually, most people get emotional in response to such questions; This has caused them to be unable to make the right decisions on their own.
Especially when a decision is likely to change the future of their lives. We see many such situations in the digital currency market; To buy or not to buy? Will the price decrease or increase? This issue caused the emergence of technical analysis.
In digital currency markets, in addition to the feeling of confusion, there is also a feeling of greed and fear. Greed, greed and fear change the process of supply and demand and price movement in financial markets. In fact, greed fuels the demand and fear also increases the supply in the market. However, it is possible to predict this kind of human behavior patterns and with technical analysis it is possible to identify and move in the right direction.
The importance of technical analysis in the digital currency market
If you intend to invest in the cryptocurrency market, especially Bitcoin, it is very important to know when to buy Bitcoin and when to sell it. Therefore, you will need to use the methods of predicting the price of Bitcoin and other digital currencies.
However, predicting the price movements of cryptocurrencies is not an easy task. Unfortunately, no one predicts correctly all the time. Many traders have suffered huge losses due to wrong predictions.
Due to the fact that technical analysis is used in order to fluctuate and predict the short-term trend of prices, it is of special importance among the traders of the cryptocurrency market. Operators in these markets try to minimize their error percentage by using this analysis.
Scientific and non-scientific market analysis
Maybe someone will say that I only use technical analysis and I am quite successful. In response, I wish this person more and more success. I personally know a person who uses astrology (one of the methods of technical analysis) and even has a book about how to use fortune telling and what share to buy in Scorpio for example. In fact, this is also the case with Elliott Waves theory and Elview software, and the hypothesis behind it is not much different from the methods of astrology and prediction.
Read more: elwave software training
So Mr. Ralph Nelson Elliott, the inventor of Elliott’s theory, also reached the hypothesis of Elliott waves based on observing the behavior of market charts and traders. Astrologers have also been able to reach a hypothesis based on the relationship between the moon, Scorpio, Uranus, etc.
But it should be noted that all such methods have a common characteristic and that is their unscientific nature. The scientific method is a method that if any person does it anywhere under the conditions defined for that case and based on its defaults, he will achieve the same result. This is despite the fact that the non-scientific method is a method that will have take and don’t take.
Is technical analysis scientific?
Technical analysis methods are non-scientific; Especially when we work on signal generator indicators, we must pay attention to the fact that the signals created in technical analysis indicators are not valid.
For example, the Relative String Index or (RSI) indicator is a momentum index in the stock analysis index and is one of the famous and popular indicators among chartists. The creator of this indicator, Welles Wilder, also chose buy and sell signals at 30 and 70; Because (RSI) is an indicator that fluctuates between 0 and 100 and is an oscillator.
According to Mr. Welles Wilder, when the (RSI) of the share enters the range below 30, it means that it has entered the oversold range and it is time to buy it. On the other hand, when the share goes above 70, it means it has entered the overbought range and it is time to sell it.
But I personally have not seen any person who was able to work with this indicator and signals provided by Mr. Welles Wilder in the market and be profitable. This means that the RSI indicator is good and even creates good profitability at times, but it is not a scientific method and cannot be relied on with certainty; It may be profitable at one time and cause heavy losses at another time.
Comparison of technical analysis and fundamental analysis
As I mentioned above, technical analysis is unproven and unscientific. But to the same extent, fundamental analysis can be considered a scientific method. Fundamental analysis has an economic method where you treat economics as a science and work on it.
Economic indicators are also used in connection with the rise and fall of a share. These cases have been checked and proven many times and therefore fundamental analysis is always preferable to technical analysis. In fact, in addition to technical analysis, you must also consider fundamental analysis and check the stock based on economic indicators to see if it has the potential to rise or if it has an upward potential.
On the other hand, in expressing the difference between technical and fundamental analysis, it can be said that both methods are used to find the intrinsic value of assets. Technical analysis is suitable for quick decisions and short-term trading; While fundamental analysis has a consensus view of the value and future of a currency and is suitable for long-term investment.
Positive and negative views on technical analysis
Technical analysis is one of the most used methods for buying and selling assets in different financial markets; But according to some experts, this analysis is controversial and unreliable. These people refer to this method as self-fulfilling prophecy and justify their behavior. According to the self-teaching prophecy, something happens when a large number of people have such a belief.
In other words, many people imagine that happening. Critics of this analysis believe that in financial markets, if a large number of investors and traders focus on one type of instrument such as support and resistance levels , the probability of its better performance will increase.
On the other hand, there are people who support this analysis who believe that every chartist and graphologist uses his own unique method to analyze charts and in the big picture, it is not possible for many traders to follow the same strategies and indicators for buying and selling.
Although we mentioned the possibility of technical analysis error and its non-scientific nature, I myself use the Elliott Waves technical analysis method. Actually, the technical methods give us a clue so that we can check the direction, support points, resistance points and trends and get a clue whether this chart is up or down.
On the other hand, some technical methods are based on market psychology. For example, the mentioned trends and points of resistance and support are also the lines obtained based on market psychology. Technical analysis is a powerful tool in the hands of analysts; But you should not rely on it alone and give it more weight than it deserves.
Advantages and disadvantages of technical analysis in digital currency market
Every tool and analysis, along with the practical features it offers, definitely has some disadvantages. Technical analysis is no exception to this rule in the cryptocurrency market, it has advantages and disadvantages that we mention below:
Advantages of technical analysis:
- Identifying price patterns and trend changes
- Possibility of use in short-term trades
- Historical analysis and identification of repetitive patterns
- Using technical indicators to make better decisions
Disadvantages of technical analysis:
- High experience required to interpret indicators and patterns
- Lack of basic understanding and ignoring developments and news
- Limitation in economic and financial analysis of property or company
Technical analysis approach
Technical analysis deals with the study of the current price of a cryptocurrency and the past of an asset, and its main idea is that the price movements of an asset are not accidental and random. In fact, based on this analysis, history repeats itself and current price trends are identified according to price history and formed patterns.
The main core of technical analysis consists of supply and demand and shows an expression of market sentiment in general. In other words, the price of a cryptocurrency or an asset is the result of the pressure of buying and selling, and these pressures are specifically related to the emotions of investors and traders (emotions such as greed or fear).
It should be noted that technical analysis is more effective and reliable in markets where price trends are carried out in a natural way and transactions are formed with high liquidity and volume.
The higher the volume of market transactions, the lower the possibility of abnormal fluctuations and price manipulation, which causes errors in technical analysis signals. In the step-by-step digital currency technical analysis training, concepts such as market sentiments, fomo and jumo, fear and greed, types of prices, support and resistance levels, types of charts and graphs, trading signals, trends and trend lines, classic patterns of technical analysis and so on. . are very important.
Types of charts in technical analysis
Analyzing price charts and knowing the trading conditions in the financial market is a daunting task. Especially for people who are new to digital currency trading. To perform technical analysis based on price and trading volume, we must use price charts that specify information in an understandable way.
For this purpose, you can use the technical analysis site.
They are among the best digital currency analysis sites.
Most fundamental charts display prices with a line. Such charts show the price at different times. These charts can be used to analyze Bitcoin. Other types of charts used to analyze Bitcoin and other cryptocurrencies include:
Candlestick Chart
Candlestick charts are one of the most famous types of charts among traders. Candlesticks or candlestick charts display very important information for traders. Each candle in this chart represents the opening price, the lowest and highest trading price and the closing price. Also, the color of the candles also shows whether the closing price is higher than the starting price or not. Usually, green shows a higher end price and red shows a lower end price.
Candlestick charts actually belong to the family of price charts (low close, open high) (OHLC).
Line chart
A line chart allows you to track the price of Bitcoin over a specific period. Traders can recognize the trend of price movement by using a line chart. Of course, it is noteworthy that the focus of the line chart is on the closing prices. Therefore, it is not possible to extract much data about the movement of Bitcoin price during the day.
Bar chart
Although a bar chart is very similar to a line chart, it shows more information to traders than a line chart. A bar chart shows prices in different time periods as rectangles on the axis of bars or lengths. Each bar represents how the price of Bitcoin changes over a period of time.
The concept of indicator and its role in technical analysis
In technical analysis, indicators are known as a set of data points that form a guide chart. These charts work with calculations and mathematical formulas and help you predict the market trend based on calculations on the price and volume of past transactions.
In fact, indicators in technical analysis play an important role in predicting the future price and trading opportunities. Usually, traders who are buying and selling digital currency in the short term often use indicators; Because indicators are created to analyze price movements in a short period of time. Long-term investors also use this tool to know the entry and exit points of their transactions.
Types of indicators in technical analysis
As we said earlier, the role of the indicator in technical analysis is to use special formulas to predict the market trend. Below I mention the most important indicators used in Bitcoin analysis:
Simple Moving Average
One of the common technical analysis indicators is the moving average. The moving average itself has different types, of which the simple moving average is considered the simplest type. As its name suggests, this tool is the simplest way to calculate the average. In the simple moving average, the prices are added together during a certain period of time and divided by the number of periods.
Bollinger Bands or Bollinger Bands
Bollinger bands or Bollinger bands is another tool used by traders, which consists of 2 bands. These two bands move around the center line as a moving average. The Bollinger indicator helps the trader to identify oversold and overbought areas in Bitcoin.
Relative Strength Index
The relative strength index is another suitable indicator for technical analysis of Bitcoin. This tool belongs to the family of oscillators. Moving average is used in relative power index calculations.
This tool is used to check the momentum of the Bitcoin market and its power of movement. Relative strength index indicator is considered as a leading indicator from the point of view of some analysts.
Based on technical analysis, prices are an expression of related data in the market, whose movement is in the direction of trends and will repeat its history.
no This analysis can be used for all levels of traders and even beginners can get help from it.
In general, the use of technical and fundamental analysis is suggested together, which, of course, depends on the analyst’s skill. Many professional analysts only use technical analysis in their trades, and some others also use fundamental analysis.
