What is Technical Analysis?
Technical analysis methods in all kinds of financial assets with historical price information such as cryptocurrencies, stocks, currencies, or commodities are used to predict which direction the markets will move in the future by looking at the historical price information. Technical analysis, which is also frequently used in Bitcoin and cryptocurrency trading, is the detection of recurring changes in the charts in order to evaluate trading opportunities. If you’re wondering what technical analysis is, then you will find the answer in this article.
How did technical analysis emerge?
The foundations of the concept of technical analysis were first laid by Charles Dow in the early 1900s. With the company they founded, Charles Dow and Eddie Jones were collecting information that was difficult to reach at that time from the market and publishing this information. This situation, which brought with it the birth of the Dow theory, is considered the beginning of technical analysis. Dow theory classified the movements in the market in three different ways. These movements are daily movements, movements experienced in 2 or 4 weeks and movements of 4 years. Examining some market movements that repeat in certain time intervals is one of the basic elements of technical analysis.
How does technical analysis work?
Traders who use technical analysis method think that price charts repeat themselves or that these charts fit certain pattern formations. The correct investment points are sought by following the movements believed to be repeated. With technical analysis methods, investors try to predict at what point they will enter and exit the market.
Technical analysis focuses on past market performance. Changes in price, volume and other parameters of cryptocurrencies, support and resistance points are determined and some predictions are made. According to these changes, how a crypto asset will progress in the future is predicted and it is aimed to invest accordingly.
Technical analysis methods
Although there are various technical analysis methods, graphic formations, trends, and indicators are some types of technical analysis used. In chart formations, prices are expected to follow a certain pattern. For example, in the triangle formation method, a breakout is expected after the prices have completed the triangle shape.
Trends, on the other hand, reflect the direction of a movement in the market. Trends are divided into three classes: ascending, descending and horizontal. While an ascending trend is the situation in which a price is expected to increase continuously, it is expected that the price will continue to decrease in a descending trend, and not much up-down activity is expected in a horizontal trend. Indicators are calculated with volume and price data. It refers to the points that indicate that the price will change direction.
What is the difference between technical analysis and fundamental analysis?
Technical analysis is based on numerical indicators such as price movements or volume changes on the chart of a cryptocurrency or other financial asset. Based on historical data, predictions are made about the future movements of the graph. In the fundamental analysis, macro elements such as local and global financial conditions, political factors, developments in the project of the relevant cryptocurrency are used.
Another important difference between technical and fundamental analysis is that fundamental analysis is used by investors who want to make medium and long term decisions whereas technical analysis is used by investors who aim to make shorter term decisions.
