If you are a crypto trader, then you should know about the various tools used in the cryptocurrency trading. One such tool is Technical Analysis which helps in better understanding of the market, the trend of the market and helps in isolating specific trends of the market. Technical analysis helps in making wiser and more accurate predictions about the flow of the market and thus gain more profit.
What is Technical Analysis?
All the technicians watch the history of the cryptocurrency on the basis of trading volumes and the price charts of the coin. Technical analysis only focuses on the real-time data as opposed to fundamental analysis which takes into consideration the type of coin, type of project and whether the coin is overvalued or undervalued.
The Basis of Technical Analysis:
Technical Analysis works on the fundamentals of Dow Theory. Here are some of the basics of the Dow theory which the technical analysts use in order to make wiser predictions about the market.
- Pricing: The market considers each and every asset in its pricing. In the case of cryptocurrencies, multiple variables such as past, current and future demand are taken into consideration.
The present price of the crypto is the response to all the present expectations and information about the coin in the market. Analysts predict the market sentiment considering the current price of the coin to make future predictions.
- Isolating the trend: Humans have a tendency to move in a trend, in the same way, market moves with a trend and does not follow any random movements. Technical analysis is used to isolate that trend to ensure profits for their clients.
3.”What” is important: The price of the cryptocurrency is more important than the factor affecting that movement. Technicians review the supply and demand rather than each and every reason which might have triggered the coin to move in a specific direction.
- Predictable trend: The trend of the market can be predicted based on the same situations in the history of the coin. It is observed that traders generally react in the same way when given the same stimuli. In short, history repeats itself.