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How to Do Technical Analysis? Beginners’ Guide

Technical analysis is a way to measure the market by using value and price data. Technical analyzers use charts to find out the patterns and then define their trading strategy based on what they have analyzed. There are various ways to do technical analysis. Some technical analyses are related to indicators and some others are related to oscillators.  The common way to do technical analysis is the combination of oscillators and indicators. The difference between technical analyzers and fundamental analyzers is that the first group uses the prices’ history and volume data in order to analyze. Technical analysis is based on 3 foundations:

 

1.The price shows everything in the market.

 

2.There are certain trends in the market.

 

3.History is interested to repeat itself.

 

The price shows everything

Some market experts criticize technical analyzers because they believe that technical analyzers only focus on price movements and they don’t pay attention to fundamentals. The answer to this criticism is that based on the efficient market hypothesis, a stock price or a digital currency price in the market reflects all the effective parameters on itself. The only important thing for technical analyzers is analyzing the price movements since they believe that an assets’ price movement is based on its supply and demand in the market.

 

There are certain trends in the market

The technical analyzers believe that the price moves in the long-term period, middle-term period and short-term period. It can be said that the price tends to move in its previous trend rather than change the trend. In fact, many technical strategies are based on this assumption. Most technical analysis’ strategies are based on this.

 

History is interested to repeat its self

Duplicate price movements which are seen in the market can be related to market psychology, which is based on fear and excitement. Technical analysts use patterns on charts to analyze these sentiments to predict future market movements. There have been many technical systems for hundreds of years all their main point is that they use previous repeated patterns to predict the next price movements.

 

Type of market doesn’t make sense

Technical analysis is used for different markets from Forex to the New York stock market.

 

Quick results

Despite fundamental analysis which predict price movements in a long period of time, the technical analyzers study periods no longer than one month some time minutes to minutes. So it is suitable for who have time and want to make money by buying and selling their securities in opposite of who invest for the long term.

 

The pattern

The price movements make a pattern in price chart specially in candlestick chart the patterns are used to predicts the next step. It is essential to learn the patterns there are many chart patterns like head and shoulder, double to, double bottom, flags and etc.

 

Support and resistance

One of the most common things to study about in technical analysis is understanding resistance and support lines as well. Support line and resistance line are closed to demand and supply which means that when the demand of something rise more than its supply its price will rise up too.The support line is a price level where it is expected of investors to increase their demand in order to save the price to go lower. On the other side the resistance line is expected to control the price by increasing the supply.

 

Volume importance

As long as the sale lasts, it indicates the validity of a trend or its reversal. If the volume of trades increases significantly, the trend is probably valid. If the trading volume increases (or even decreases) only slightly with the increase in price, the trend is probably due to reversal.

 

Trend line importance

Trend line is one of the most important parts in technical analysis and it is easy to learn it. Trend line gives a view of previous price movement. Trend line is a line on a chart which is added to the chart to show the whole market movement. In order to draw this line, you should connect the lowest price during a specific period to the highest price in that period.

 

Bottom line

It is recommended to learn everything about the market. Be aware of false information and take the best action in your trades whenever it is needed to.

 

 

 

 

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