What is Technical Analysis?

Technical analysis is used to better understand market sentiment and isolate significant trends in the market. This data can be used to make more educated predictions and wiser exchanges.

Technological analysis considers the history of a currency with price charts and trading volumes, no matter what the currency or the project does. Unlike the technical analysis, the fundamental analysis focuses more on establishing whether a currency is overvalued or undervalued.

To get a better idea of ‚Äč‚Äčtechnical analysis, it is crucial to understand the fundamental ideas of Dow Theory on which the technological analysis is based on:

  • The market considers everything in its price. All existing, previous and future details have already been integrated into the current asset prices. With respect to Bitcoin and crypto, this would be composed of multiple variables such as current, past and future demand, and any regulation that affects the crypto market. The existing price is a response to all current details, which includes the expectations and knowledge of each currency that is traded in the market. Technicians interpret what the price suggests about market sentiment to make wise predictions calculated about future prices.
  • The price movement is not random. On the contrary, they often follow trends, which can be long or short term. After a currency forms a trend, that trend will probably follow to oppose. Technicians try to isolate and benefit from trends using technical analysis.
  • “What” is more important than “Why”. Technicians are more focused on the price of a currency than each variable that produces a movement in its price. Although multiple aspects could have influenced the price of a currency to move in a specific direction, technicians assertively review supply and demand.
  • History tends to repeat itself. It is possible to predict the psychology of the market. Merchants sometimes react in the same way when they are presented with similar stimuli. There are these four things in Technical Analysis which matters a lot: Trend Lines, Resistance and support levels, Moving averages and Trading Volume.

Trend lines

Trend lines, or the typical direction a currency is moving, may be more beneficial for crypto traders. That said, isolating these trends may be easier. Crypto assets can be substantially volatile, and seeing a graph of Bitcoin price movement or cryptography will likely reveal a selection of ups and downs that form a linear pattern. With that in mind, technicians understand that they can ignore volatility and find an upward trend by seeing a series of higher highs, and vice versa: they can identify a downtrend when they see a series of lower lows.

Trading Volume

The trading volume plays an important role in identifying trends. Significant trends are accompanied by a high volume of negotiation, while weak trends are accompanied by a low volume of negotiation. When a coin falls, it is advisable to verify the volume that accompanied the decrease. A long-term trend of healthy growth is accompanied by a high volume of increases and a low volume of decreases. It is also important to see that the volume increases over time. If the volume decreases during increases, the upward trend is likely to come to an end, and vice versa during a downward trend.

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