Among the words that are usually used when talking about cryptocurrency price are bullish, bearish, break, support and candle. Not only among crypto enthusiasts, these words are heard from forex traders as well.
It all started in the 17th century but the modern technical analysis is based on the Founder of The Wall Street Journal, Charles Dow. His work has created the Dow Theory that encourages the development of the technique.
Function Of Technical Analysis
The main function of technical analysis is to gauge and identify the investment opportunity. This analysis will make sure that the investors get more information on the movement of price and the previous trading amount.
This technique will enable investors to make decision on various types of assets such as security, stock, futures contract, commodity, fiat currency exchange as well as cryptocurrency. This technique will be suitable for short term investors that prioritize market commodity, forex and cryptocurrency.
Three Basics Of Technical Analysis
There are two types of market analysis, fundamental analysis and technical analysis. For fundamental analysis, it pictures the sentiment of investors towards an asset. Whereas, for technical analysis, it is used for:
- Discounted Market Price
Technical analysis is capable of further reviewing the movement of price because it depicts the relationship between demand and supply of asset.
- Market Movement Pattern
Price movement pattern in the form of short, medium and long term. Usually the market price follows a certain pattern used before and does not move randomly.
- History May Repeat
Market movement normally is co-related to market psychology that is determined through emotions like worrisome and excitement. Although the technical analysis shape has been around since hundreds of years ago, it is still relevant and effective till date.
Technical Analysis Indicator
There are various types of indicators that is used in the technical analysis. Indicators are the tool and technique based on mathematical computing for prices and previous trading volume in assisting to forecast the asset’s price movement.
This helps the investors to indicate the oversold trend, overbought, adjustment and correction. Investors need to acquire the complete knowledge and experience to interpret the displayed trend to help them make decision.
Among the normally used indicators are:
- Trend price
- Chart pattern
- Volume and momentum indicator
- Moving averages
- Support and resistance level
Technical Analysis Myths
- Technical analysis is not a magic tool that could forecast 100% precisely and always profits the investors.
- Technical analysis only identifies trend based on facts and figures to ensure investors can make smart decision. It is not a crystal ball to follow blindly.
- Reading and learning the technical analysis will not make investor an expert immediately. The knowledge needs to be put into practice and followed to gain experience.
Therefore, before making any investment, investors need to be prepared and self-equipped with the knowledge to help them. Apart from that, investors also need to be able to take risk to try out and face losses. Technical analysis is merely a tool to help investors to learn and be experienced in the investment world.
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