If you want to learn only effective methods of technical analysis in the crypto market as quickly as possible, welcome to our blog. Here we let you get only valuable techniques and not waste time reading hundreds of sedative pages of textbooks.
This blog discusses in detail and in an accessible form the selected and proven theoretical foundations of technical analysis that work in the crypto market. It is based on materials from leading experts in technical analysis with a worldwide reputation, such as John J. Murphy, Jack Schwager, Steve Nisson, Tom Williams, Carolyn Boroden, etc. Here you will receive information from various proven publications in a concise form, in a step-by-step manner.
This blog will also be helpful for experienced traders. The blog’s author has been trading crypto since 2016, and every time he re-read the books, he finds something new that comes after experiencing the market. Practice makes perfect. One of the greatest traders of his time W. D. Gann, once said: “I have studied and improved my methods every year for the past forty years. Nevertheless, I am still learning and hope to make more significant discoveries in the future. “
This article aims to convincingly prove the need to use technical methods to successfully predict price movements. The author of “The Bible of Technical Analysis,» John J. Murphy, is the best person to help us. The following material will acquaint you with TA’s philosophical basis and tell you the advantage of TA over Fundamental Prediction.
Philosophy or Rationale
Technical analysis is the study of market action, primarly through the use of charts, for the purpose of forecasting future price trends. It is simply one of the approaches to predicting market movement, based on the study of the past, human psychology, and probability theory. Of course, it is not perfect. Nevertheless, in most cases, its forecasts are characterized by a reasonably high degree of accuracy. Technical analysis has stood the test of time in the real world of stock trading. It deserves the attention of those seriously studying market behavior.
Market Action Discounts Everything
The statement “Market Action Discounts Everything” forms what is probably the cornerstone of technical analysis. Unless the full significance of this first premise is fully understood and accepted, nothing else that follows makes much sense. The technician believes that anything that can possibly affect the price – fundamentally, politically, psychologically, or otherwise – is actually reflected in the price of that market.
The charts do not in themselves cause markets to move up or down. They simply reflect the bullish or bearish psychology of the marketplace.
Prices Move in Trends
The concept of trend is absolutely essential to the technical approach. Here again, unless one accepts the premise that markets do in fact trend, there’s no point in reading any further. The whole purpose of charting the price action of the market is to identify trends in early stages of their development for the purpose of trading in the direction of those trends. Most of the techniques used in this approach are trend-following in nature, meaning that they intend to identify and follow existing trends.
A trend in motion is more likely to continue than to reverse. The entire trend-following approach is predicated on riding an existing trend until it shows signs of reversing.
History Repeats Itself
Technical analysis and the study of market action has to do with the study of human psychology. Chart patterns, for example, which have been identified and categorized over the past one hundred years, reflect certain pictures that appear on price charts. These pictures reveal the bullish or bearish psychology of the market. Since these patterns have worked well in the past, it is assumed that they will continue to work well in the future. They are based on the study of human psychology, which tends not to change. Another way of saying this last premise – that history repeats itself – is that the key to understanding the future lies in a study of the past, or that the future is just a repetition of the past.
Technical Versus Fundamental Forecasting
While technical analysis concentrates on the study of market action, fundamental analysis focuses on the economic forces of supply and demand that cause prices to move higher, lower, or stay the same.
The problem is that the charts and fundamentals are often in conflict with each other. Usually, at the beginning of important market moves, the fundamentals do not explain or support what the market seems to be doing. It is at these critical times in the trend that these two approaches seem to differ the most. Usually, they come back at some point, but often too late for the trader to act.
One explanation for these seeming discrepancies is that market price tends to lead the known fundamentals. Stated another way, market price acts as a leading indicator of the fundamentals or the moment’s conventional wisdom. While the known fundamentals have already been discounted and are already “in the market,” prices are now reacting to the unknown fundamentals. Most dramatic bull and bear markets in history have begun with little or no perceived change in the fundamentals. By the time those changes became known, the new trend was well underway.
It is possible to trade financial markets using just the technical approach. It is doubtful that anyone could trade off the fundamentals alone without considering the technical side of the market.
Technical Analysis Applied to Different Time Dimensions
Another strength of the charting approach is its ability. To handle different time dimensions. The opinion expressed in some quarters that charting is useful only in the short term is simply not true. Some have suggested that fundamental analysis should be used for long-term forecasting with technical factors limited to short-term timing. The fact is that longer range forecasting, using weekly and monthly charts going back several years, has proven to be an extremely useful application of these techniques.
Some Criticism of The TA
The truth of the matter is that charting is very subjective. Chart reading is an art. (Possibly, the word ”skill” would be more to the point.) Chart patterns are seldom so clear that even experienced chartists always agree on their interpretation. There is always an element of doubt and disagreement.
The mistaken impression of chaos disappears with the growth of skill in the analysis of charts.
We discussed the philosophical basis underlying technical theory and some of the issues that most often arise in connection with the technical analysis of the market. In the next article, we will proceed to get acquainted with the theory itself.
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