"Prices move in trends, and history repeats itself" - this is the fundamental hypothesis of technical analysis. Have you ever wondered how some traders predict market movements with astonishing accuracy? They use a hidden language present in the charts, a language you can learn too.
Ahmed, a civil engineer, used to buy and sell based solely on news and rumors. "I used to buy when everyone talked about an imminent rise, and sell when negative news spread." The result? Repeated losses. Today, after learning the basics of technical analysis, he makes smarter decisions away from market noise.
Technical analysis is the study of past price movements to predict future movements. It is based on the idea that prices reflect all available information, and that price movement patterns tend to repeat due to trader psychology.
Here are the basic concepts of simplified technical analysis:
Trends: an uptrend is characterized by a series of higher highs and higher lows, while a downtrend has a series of lower highs and lower lows. Identifying the trend is the first and most important step.
Nora, a professional trader, says: "I draw lines connecting the lows in an uptrend and the highs in a downtrend. These lines give me a clear picture of the strength and continuity of the trend."
Support and resistance levels: support is the level where the price tends to bounce up from, and resistance is the level that the price struggles to surpass. These levels form due to the concentration of buy and sell orders.
Japanese candlestick patterns: some candlestick formations like 'hammer', 'evening star', and 'engulfing' provide strong signals of a possible trend change.
Karim, a technical analysis coach, shares his advice: "The simplest pattern beginners can start with is the 'engulfing'. When a large candle completely engulfs the previous candle and is of the opposite color, it is a strong signal for a trend reversal."
Technical analysis indicators: mathematical tools that help analyze price movements. The simplest and most useful for beginners:
- Moving Averages (MA): show the average price over a period, helping to identify the overall trend and filter out noise.
- Relative Strength Index (RSI): measures the speed and change of price movements, and helps identify overbought and oversold conditions.
- Moving Average Convergence Divergence (MACD): shows the relationship between two moving averages and helps identify momentum and trend changes.
Trading volume: confirms the strength of price movement. A price increase with high trading volume indicates strong movement, while a price increase with low trading volume may signal weakness.
John Murphy, a technical analysis expert, says: "Technical analysis is the study of market behavior, not the study of fundamentals. It reflects the psychology of the crowd."
Sami, an accountant turned trader, shares his experience: "I started by learning just one indicator (RSI) and applied it for a whole month. Then I added moving averages. Gradual learning is key - don't try to learn everything at once."
Remember that technical analysis is not an exact science, but an art of probabilities. There is no indicator or pattern that guarantees 100% results. Combining technical and fundamental analysis yields the best results.
In the next post, we will discuss the buy and hold (HODL) strategy - the simplest and most effective strategy for beginners. Are you ready to discover the power of patience in the crypto world?
