The brand-new project "Technical Analysis for Beginners" will break down technical analysis into three main parts: "Concept → Technical Indicator Principles → Practical Operation", allowing beginners not only to learn the concepts in their minds, but also to master the practical skills. Although most investors believe that "technical analysis" has a certain degree of difficulty, as it involves the analysis and learning of charts and data, learning one more analytical tool is like learning one more language - the world becomes a little bigger after you learn it. Similarly, as long as you learn technical analysis, you will have a little more advantage over others!
For friends who are just starting to get in touch with crypto investment, the most impressive thing is that crypto does not have opening and closing hours, it is a 24/7 trading market, so the price fluctuations of crypto are more dramatic than stocks, which has created all kinds of legends of overnight wealth and bankruptcy (smoke) in the crypto world. Therefore, how to make wise investment decisions, or more accurately, how to judge the market conditions and predict the upcoming trends in advance, so that you can seize the opportunity, is very important for investors. (Every investment is)
So how do we judge the market conditions? If we take stocks as an example, the analysis can be done from two perspectives: fundamental analysis - studying the current situation of the company issuing the stock and the news of the related industry, focusing on the "value" of the company and the stock itself and its future development; the other is technical analysis - through charts and data, telling stories with the charts, and obtaining information about the "market consensus".
As a financial investment target, crypto naturally applies these two analysis methods. Next, we will systematically understand these two analysis methods, and focus on learning what "technical analysis" is? What knowledge and basic indicator concepts do we need to have first? I boldly predict that after reading this article, you will have at least 60% understanding of technical analysis! (The remaining 40% are hidden in the other articles of this project, remember to continue exploring after reading this!)
What is Fundamental Analysis and Technical Analysis
As mentioned earlier, using stocks as an example to distinguish fundamental analysis and technical analysis, and applying it to crypto, fundamental analysis will shift from focusing on a fixed company or industry to researching the project party or the technical characteristics of the crypto, focusing on the "intrinsic value" of the project.
Taking the well-known Ethereum ($ETH) as an example, it will focus on researching the current application scope of Ethereum, or what new impacts the blockchain upgrade will bring (such as the Dencun upgrade at the beginning of this year), or the recently approved Ethereum ETF, which may be a green light for price increase.
To learn more about Ethereum, I recommend you read:
What is Ethereum? What's the difference between Ethereum and Bitcoin?
To know what the Dencun upgrade is, I recommend you read:
Technical analysis, on the other hand, is another way of judgment - from the market perspective. Here we need to mention a basic concept first, crypto is just like stocks, there are buyers and sellers, when there are more sellers (with supply increasing and demand unchanged), the price will fall, on the contrary, when there are more buyers, the price will rise, and this back-and-forth buying and selling process will make the price chart go up and down, on this basis, the price is considered to have already reflected all the market news, and technical analysis uses the price chart as the basis for predicting future trends.
For crypto, it is to use the price trend chart we see, through the interpretation of various data in the chart, to find out the possible direction (up or down) the market may present next. Different from fundamental analysis, technical analysis does not care about the technical value of the crypto or the background of the team, but focuses on the price trend and market sentiment.
We can say that technical analysis is a kind of "looking back to know the future" investment method. Here are a few core points of technical analysis:
—— Price reflects everything: All factors that may affect the market (news, policies, economic data, etc.) have been reflected in the price trend
—— History will repeat itself: The behavior patterns of market investors will repeat, so the past price trends can help predict future trends
—— Price trend: Prices usually move in a certain direction, whether upward, downward, or fluctuating within a range. By observing these price movements, it can help investors make buying and selling decisions and find the best investment opportunities
The Basic Concepts of Technical Analysis
So what data should we look at for technical analysis? And what tools do we need to help us analyze the charts? If we go into the details of technical analysis, it can actually be divided into many schools. Currently, the most commonly used one is the "Candlestick Theory" said to be invented by Japanese rice merchants in the Edo era, as it had a detailed recording function, and later evolved into the candlestick charts we often see in the stock and crypto markets.
Want to learn more about candlesticks? Know more about how to interpret the charts? I recommend you read:
Candlestick Chart Entry: How to Analyze Market Trends Using 12 Basic Patterns?
In addition to understanding candlesticks, there are two other technical analysis concepts that need to be grasped in advance, which are "trend" and "support and resistance levels". Before using technical indicators as tools, you must be familiar with these two concepts!
Trends
In technical analysis, trend is one of the most important concepts, referring to the long-term direction of price movement. Understanding the trend can help investors decide whether to trade in the current market direction or wait and avoid the uncertain fluctuations of the market. Trends can be divided into three types:
—— Uptrend: Prices are constantly making new highs, and each pullback's lowest point is higher than the previous one
—— Downtrend: Prices are constantly making new lows, and each rebound's highest point is lower than the previous one
—— Sideways trend: Prices fluctuate within a stable range, without a clear upward or downward trend
Support and Resistance
The support line is the area where the price may stop falling and rebound, as many people are willing to buy at this point to support the price. Conversely, the resistance line is the point where more people start selling, making it difficult for the price to continue rising.
Support and resistance levels can help us find the right time to buy or sell. For example, when the price is approaching the support level and shows signs of rebound, this may be a good buying opportunity; when the price is approaching the resistance level, we can consider selling to avoid a price pullback.
What are Technical Indicators
After learning the basic concepts of technical analysis to identify price trends, we will now move on to the more advanced "tool usage" stage. The "trend" and "support and resistance" just learned can be obtained from the chart's candlesticks, while "technical indicators" are data calculated using formulas based on price and trading volume, to help investors more accurately interpret market trends.
The commonly used technical indicators are roughly divided into six categories: MA (Moving Average), KD (Stochastic Oscillator), RSI (Relative Strength Index), MACD (Moving Average Convergence Divergence), Bollinger Bands, and BIAS (Bias Indicator). We have compiled an article to help you learn these six indicators step by step:Learn these six technical indicators, and you can easily do technical analysis!
Although these indicators are calculated based on price and trading volume, it does not mean that you need to calculate them manually. You can set them up through crypto exchanges or online charting tools. You only need to learn "how to read" the line charts and data generated, and then you can use technical indicators to help you make investment decisions!
The Importance of Trading Volume
After getting familiar with technical indicators, there is one more important factor to consider, which is "trading volume". As mentioned earlier, technical indicators are calculated based on price and trading volume, reflecting the total buying and selling activity in the market. High trading volume usually means that the reliability of using technical analysis methods to make decisions is higher, while low trading volume may indicate that the price trend lacks support.
Trading volume can also help us verify price trends. For example, if the trading volume increases significantly during a price uptrend, it usually means the trend is likely to continue; if the trading volume decreases, it may indicate the trend is about to reverse.
Pros and Cons of Crypto Technical Analysis
Neither technical analysis nor fundamental analysis is absolutely infallible, and because technical analysis focuses on the market, it still has several shortcomings. The following is a summary of the advantages and disadvantages of technical analysis for new investors.
Summary of Technical Analysis Principles
Technical analysis is not a tool for predicting future prices, but a method to assist decision-making. It can increase the probability of investors making the right trading decisions, but it also needs to be combined with market sentiment and fundamental analysis, and learn to manage risks and set stop-loss points.
If you want to learn more about crypto investment knowledge and the basic principles of blockchain, please continue to follow theofficial community Instagram of NONE LAND, so you won't miss any new tutorials and news!
〈A Beginner's Guide to Technical Analysis! Interpreting the Six Major Technical Indicators and Crypto Market Trends〉 was first published on《NONE LAND》.
