Technical Analysis Overview
The investment decision is based out of two different ways:
- Fundamental Analysis: Analyzing a company's financial statement
- Technical Analysis: Understanding the market sentiment behind price trends
Technical Analysis
The study of statistical trends, collected from historical price and
volume data, to identify opportunities for trade.
Assumptions of
technical analysis
- Market discounts everything
- History tends to repeat itself (psychological)
- Price moves in trend (reflexive)
Trend
A trend is the overall direction of a market or an asset's price identified by
trendlines .
Three possible trends:
- Uptrend: Asset going up, making higher highs or higher lows
- Downtrend: Asset going down, making lower highs or lower lows
- Sideways: Asset trades in horizontal channel
Technical Analysis considers: (Basics of
Technical Analysis )
- Price
- Chart Patterns
- Volume-Momentum Indicator
- Oscillators
- Moving Average
- Support Resistance levels
Movements are not linear, the price will face resistance as it goes up or support as it goes down.
-Resistance: Level where an uptrend can be expected to pause or rebound due to a concentration of sellers.
-Support: Level where a downtrend can be expected to pause or rebound due to a concentration of buyers.
Technical Indicators broadly
serve three functions to alert, to confirm, and to predict. There are two types of indicators:
- Leading Indicator: Leads the pice, generates a signal for trading opportunities. Eg. Oscillators i.e. RSI , CCI , Stochastic , Williams %R , Momentum, etc.
- Lagging Indicator: Follows trends and patterns, reduces the risk in exchange for missing early opportunities. Eg. Moving Averages, Bollinger Band , and MACD .
A few myths about Technical Analysis:
- TA is only for short trading or day trading-
TA can be used in all time frames, from 1 minute monthly charts
- TA has a low success rate-
Solely TA can give you profits if used effectively
- Technical Analysis is quick and easy-
Continued success requires in-depth learning, practice, good money management, and discipline
- Ready-made technical analysis software can be helpful-
Such software may provide insights about trends or patterns but cannot guarantee profits, use of backtesting is necessary
- TA can provide price predictions accurately-
TA is about probability and likelihood, and not guaranteed thereby price ranges can be predicted
- The winning rate in TA should be higher-
Profitability does not depend solely on win-rate, it also incorporates risk-reward ratio
Limitations of Technical Anlaysis
- Tend to give mixed signals when used in isolation, confusing traders
- TA is all about probability and signal cannot guarantee a successful trade even after thorough analysis
- Often technical analysts use indicators in different methods and may form a biased view regarding the same stock
- Many a time the technical signal may lag, and by the time proper signal is generated it is possible that the trade might be over
- A single trading strategy may not work in all scenarios as markets tend to be extremely dynamic
Few Trading Mistakes Beginners Make:
- Starting with real money
The best way to get acquainted with trading rules is to have a demo with virtual money before investing in real money, you can perform paper trades on Mudrex
- Not examining situation by yourself
Make your own strategy, test them on the Mudrex platform, and then follow the same plan to trade by understanding things on your own
- Inevitable Losses
Set risk limits for yourself and trade accordingly and accept the losses you face
- Margin Trading in the beginning
It is not recommended to margin trade until and unless you understand the risk completely as crypto trading is rewarding yet risky
- Following the herd
Before making a start with real money, make a set of rules which needs to be followed and have stop losses to limit the loss incurred on your trade
----------------------------------------------------------------------------------------
If you find the post useful, please like and share our ideas with the community!
- Mudrex
from Trading Ideas https://ift.tt/35Fs5pK
via
gqrds
.png)
