Technical analysis is an analysis that helps predict future market behavior. It is based on two components: price and volume.
In addition to all this, there are a huge number of tools that help carry out technical analysis. These are various indicators, oscillators, and so on. I just ask you not to confuse technical analysis and technical analysis tools, as these are completely different things. There are a huge variety of technical analysis tools, but in the end they still all work with price and volume. That is, when you analyze indicators, and not price and volume, then we can say that you are using a distorting mirror that distorts everything.
Here's an example: if I went to a restaurant today, it means that I made money on the crypto market today. Of course, there is some logic here, but it still doesn’t mean that I made money today. Maybe I went to a restaurant with the money I earned last month, or I sold my car, or maybe I’m being treated to a treat today. Therefore, you do not need to pay attention to third-party indicators, and when conducting technical analysis, first of all you need to look at the original source, and not at the interpretation. The primary sources are volume and price.
Volume is the size of all transactions for any unit of time. Please note, this is what the volume histogram looks like.
In our technical analysis, we do not use the default volume, since it is formed not in dollars, but in the quantity of a particular coin. It is best to use Dollar normalized volume
Price is the value of an asset: a stock, futures, or cryptocurrency. Let me give you an example: imagine that every year you bought bananas for one dollar per kilogram. And this price is acceptable for you. One day you came to the store, and there bananas cost 10 dollars. You are well aware that in terms of your past purchases this is very expensive. That is, you yourself gave a comparative assessment of the product based on its history, that is, its past prices. If you had never bought bananas and were told the price was 10 dollars, then you would not think whether it was expensive or cheap, since you would have nothing to compare with. In this case, any price would be acceptable for you.
One more example. Let's say you know that bananas last year cost 2 dollars, but now they cost one dollar. From the point of view of your purchase history, this is really cheap, since this price has never been seen before.
Third example. In the store you saw bananas for half a dollar. What will be your first thoughts? Of course, many of you will buy more for yourself. The more advanced ones will buy for their acquaintances and friends, and the smart ones will buy several tons, hire a truck and take them to sell them 100 - 200 kilometers to some small city for one dollar, and the people there, like you in the second example, will think that it’s cheap, “after all, last year it was 2 dollars.” In this case, everyone would be happy, and you would also make money on it. I gave specific examples in bananas, but you can easily transfer them to the financial market.
Let's look at a few rules:
First, technical analysis is based on history. You can’t take some coin that was created three days ago and start analyzing it.
The second rule is that you must see from the outside how the crowd reacts to the price. Do you think it's cheap?? but why then no one buys this coin??? She's barking now.
For example, bananas cost a couple of dollars, people walk around with carts, take various goods, but do not pay any attention to bananas. What do you start doing in this situation? First, you start doing your own research - for example, you will ask people: why is it so cheap? Why doesn't anyone take these bananas? What's wrong with these bananas anyway? That is, you will look for additional pros and cons to buy or not buy these bananas.
Another example. You go into a store, and there is a huge crowd and some kind of madness is happening. Do you immediately start asking people what is it? They tell you that they brought bananas for half a dollar. And you immediately understand that at half a dollar it’s cheap, plus there’s a stir, which means it’s really cheap. In this case, you have done your little technical analysis. First, you paid attention to the price, that it’s really cheap, and second, you paid attention to the volume, in this case it’s the rush of people wanting to buy bananas.
One more example. You go into a store and there are huge crowds there. You see people buying bananas, and the rush is so great that people are taking them away from each other. To your surprise, the price tag on these bananas is as much as $5. In this situation, there is excitement, but the price is historically very high. If this situation is translated into the market, then this is an ideal place for sales.
Therefore, when conducting technical analysis, it is imperative to use both price and volume, and in comparison with historical values.
A lot of traders, especially beginners, draw patterns on a chart where there is very little history. This is dangerous to do, since we do not yet know the vulnerable spots from which strong selling or strong buying can begin. In this case, it is better to sit out without a position, and enter it when at least the levels and zones are drawn. This will be more cost-effective from a risk management point of view.
Let's imagine the following picture: the fictitious Ivan begins to analyze the chart on a one-minute time frame, everything seems to be fine, he found some kind of pattern, drew it, opened a long position, and then the fictitious Steve - not even a billionaire - sold part of his position, but The chart has already shown a downward movement. If we switched to the daily, or at least hourly, timeframe, then practically no movements would be observed. That is, to summarize - for successful trading you need to look at the chart on a large time frame - month, week, day, and in rare cases, hours. Small timeframes create a lot of chaotic noise and are a very bad idea to trade on. One daily candle consists of 1440 minute candles. In fact, serious fluctuations on minute candles do not reflect much on daily candles. So why initially look at a graph that has very little information? The most popular time frame in particular in the crypto market is 1D. 1 week or 1 month is of course more indicative, but the crypt is still young, and such time frames will lack history. It is more convenient to use a 1 week or 1 month time frame on the stock market, in particular stocks that have already been on the market for more than 1 decade. In this case, market noise will be practically eliminated.
I will be grateful for your likes and subscriptions!