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<h2 id="header-0"><em>Technical analysis (TA) has been used for close to a century and it is still used in modern-day markets, such as crypto markets.</em></h2><p></p><h2 id="header-1"><strong>What is Technical Analysis?</strong></h2><p>Technical  Analysis (TA) is a trading method that revolves around analyzing past  market data market, typically in the form of charts. Traders utilize TA  in nearly all financial markets to obtain an edge through price and  volume data. TA was first popularized in the late 1940s, and since then,  it has been one of the most used tools in trading.</p><p>This  method differs from fundamental analysis (FA), which relies on factors  such as sales, earnings, and other macro-economic backdrops to evaluate a  securities value. This is opposed to technical analysis, which strictly  uses price and volume data integrated with a plethora of analytical  strategies that revolve around price charts. TA is best used in short to  mid-term timeframes as it allows users to gather information on the  supply and demand of an asset and speculate on the next movement of it.  Many also apply this analysis technique in finding the overall strength  and weaknesses of assets compared to other sectors of the market; these  traders would utilize high time frame charts such as Daily, Weekly, and  Monthly.</p><p>‍</p><h2 id="header-2"><strong>Early Theory</strong></h2><p>As  previously mentioned, TA arose in the late 1940&#39;s and some of the  largest contributors to the field were Dow, Hamilton, Rhea, Gould, and  Magee, who all introduced aspects of modern-day TA theory. These  pioneers begin through hand charting and data calculation, which has  tremendously evolved as we&#39;ve entered the digital age. While some of  these principles are outdated, the core fundamentals have seemed to hold  even in modern-day cryptocurrency markets.</p><p>For those who wish to learn more about the pioneers of TA, check out the following Investopedia article:</p><p><a href="https://www.investopedia.com/articles/financial-theory/10/pioneers-technical-analysis.asp" rel="noopener noreferrer nofollow">The Pioneers of Technical Analysis</a></p><p>‍</p><h2 id="header-3"><strong>Basics of Technical Analysis</strong></h2><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/d9089aa94044451bab5dec845f4e156d.jpeg" /></p><p><a href="https://academy.binance.com/en/articles/what-is-technical-analysis" rel="noopener noreferrer nofollow">Source</a></p><p>The  fundamental aspect of TA relies on the fact that traders assume past  price and volume data are valuable in speculating future price moves.  This consists of all sorts of methods and tools which traders can access  to capitalize on the given data. Typically, large scale traders and  investors don&#39;t rely on FA or TA soley; many successful traders  incorporate a blend of both. On the other hand, there are a plethora of  extremely successful traders who integrate only one type of analysis.</p><p>TA relies on a few assumptions from Dow Theory, which build out the core concepts of how to execute TA:</p><ol><li>The  Market Discounts everything – This assumes that everything in markets  is already priced in, such as broad market factors and market  psychology. This leaves any other speculation and asset movement a  direct product of supply and demand.</li></ol><p>Editors Note: I argue  this is not the case, and the fact that not all aspects of markets are  priced in results in large amounts of edges to be realized.</p><ol><li>Price  Moves in Trends – This core aspect of TA revolves around one of the  most popular trading strategies, trend following. Prices seem to exhibit  trends that can been seen on charts, allowing traders to capitalize on  patterns. The assumption is that prices are more likely to trend than  move sporadically</li><li>History Tend to Repeat Itself – This is a core  aspect of TA as all data referred is past price and volume data.  Technical Analysts trade on the idea that markets exhibit repetitive  nature, which can be accredited to market psychology, such as fear and  greed. These assumptions are since humans show patterns that display  themselves in financial markets.</li></ol><p>‍</p><h2 id="header-4"><strong>Application of Technical Analysis</strong></h2><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/129b57fb68a9416fb0d46e56db3d20c5.jpeg" /></p><p>As  time has progressed, traders have adopted strategies beyond classical  chart patterns and basic market structure. A very common TA method that  traders employ is the use of indicators and metrics to understand trends  better. One large class of indicators consists of <a href="https://academy.binance.com/en/articles/moving-averages-explained" rel="noopener noreferrer nofollow">moving averages</a>;  simple moving averages (SMA) and exponential moving averages (EMA)  frequent the most in trading strategies. These indicators calculate an  average price using the closing prices of an asset within a certain  period. EMA&#39;s go a step further, weighing the most recent closing prices  more heavily than the previous.</p><p>Another popular type of indicator is oscillators; one of the most used is the <a href="https://academy.binance.com/en/articles/what-is-the-rsi-indicator" rel="noopener noreferrer nofollow">relative strength index</a> (RSI). Oscillators differ from moving averages as they apply  mathematical formulas to price data, which spit out reading that fall  within a pre-defined range. As for the RSI this range is from 0 to 100,  typically representing if an asset is overbought or oversold.</p><p>These  are only a couple of technical indicators used in trading out of the  thousands available to traders. Indicators are not the holy grail to  trading, but they can serve as powerful tools to traders who can  incorporate them into their strategies. Typically traders will combine  indicators with other technical analyses such as price trends, chart  patterns, and support/resistance levels. This makesup what is known as a  market structure that nearly all technical traders utilize.</p><p>Overall, technical analysts look at a plethora of things depending on each individuals edge:</p><ul><li>Price trends</li><li>Chart patterns</li><li>Volume and <a href="https://www.investopedia.com/investing/momentum-and-relative-strength-index/" rel="noopener noreferrer nofollow">momentum </a>indicators</li><li><a href="https://www.investopedia.com/terms/o/oscillator.asp" rel="noopener noreferrer nofollow">Oscillators</a></li><li><a href="https://www.investopedia.com/articles/trading/10/simple-exponential-moving-averages-compare.asp" rel="noopener noreferrer nofollow">Moving averages</a></li><li>Support and resistance levels</li></ul><p>‍</p><h2 id="header-5">Technical Analysis Drawbacks</h2><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/e0199eb4347d49a58b655b65c1d511d7.jpeg" /></p><p>While  technical analysis is widely adopted, it is a controversial topic among  many professionals in the space. One argument often brought up that it  goes against the efficient market hypothesis in the sense that there  should be no actionable data that is not priced into markets, including  price and volume data.</p><p>Critics will also argue that TA only works  as some sort of &#34;self-fulfilling prophecy,&#34; the more people who adopt  the thinking enable it to work. In the scope of financial markets, many  argue that since numerous traders rely on similar support/resistance  lines and indicators, the chances of success increase.</p><p>In  contrast, most TA traders will argue that each trader can analyze charts  and indicators to find an edge. At the end of the day many traders find  success in only using TA on top of the plethora of successful traders  who incorporate both FA and TA.</p><h2 id="header-6">Fundamental Analysis vs Technical Analysis</h2><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/27af4639e1cb41b2b4cd187fe9dadb56.jpeg" /></p><p><a href="https://academy.binance.cc/en/articles/what-is-fundamental-analysis-fa" rel="noopener noreferrer nofollow">Source</a></p><p>As  mentioned, Fundamental and Technial analysis represent two schools of  thought which nearly all investors and traders fall into. Both methods  incorporate research to forecast the market&#39;s future trends, whether  short term or long term. Ideally, market participants can incorporate  aspects of both into their trading strategy to maintain an edge in  markets.</p><p>Fundamental analysis focuses on pricing an asset&#39;s  intrinsic value by studying the overall economy and industry conditions.  Traditional fundamental analysis can be tied to earnings, expenses,  assets, and liabilities of the stock or company that is being invested  in. In De-Fi markets, users use indicators such as Total Value Locked  (TVL), Annual Percentage Yield (APY), and Market Cap (MC), among a  plethora of others.</p><p>A large difference between the two is that  fundamental analysis aims to value the asset, telling the  investor/trader whether the asset is undervalued vs overvalued. As for  technical analysis, traders focus on market charts to predict price  action or behavior. Overall, both strategies are ways that traders  speculate on market moves in modern-day financial markets.</p><h2 id="header-7">Conclusion</h2><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/7f6fe1a029444a2c846751f7ead0305d.jpeg" /></p><p><a href="https://academy.binance.cc/en/articles/the-basics-of-support-and-resistance-explained" rel="noopener noreferrer nofollow">Source</a></p><p>Technical  analysis has been used for close to a century and its still used into  modern-day markets, such as cryptocurrencies. TA provides traders with  past market history allowing them to speculate on patterns and market  structure using price and volume data. Many traders rely on TA as a  crucial aspect of their trading strategy alongside other analysis  techniques. Charts are a powerful tool as they also allow traders to set  defined Risk:Reward profiles in their speculations. Overall, TA has  rooted itself into the core of markets alongside FA; ideally, a trader  will be able to incorporate both thoughts in constructing a profitable  trading strategy.</p><p>Visit <a href="https://www.bsc.news/" rel="noopener noreferrer nofollow">bsc.news</a> for more content.</p>

Trading Toolkits: Technical Analysis Explained

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