For any crypto trader, it is ideal to use technical analysis to achieve consistent results. There is a need to have some calculations that help predict price movement when trading. Trading can become a gamble if you only make use of buy or sell orders based on intuition or guesswork.
Technical analysis involves a subjective study combining statistics with patterns that the naked eye must recognize. It is thus imperative to learn the basics and build blocks of technical analysis to discover its infinite value.
What is Technical Analysis?
Technical analysis involves the use of mathematical indicators as a way to evaluate statistical trends as a way of predicting price prediction in the crypto market. One can do this by focusing on past price changes and volume data to determine how the market works and predict how it will affect future price changes.
We focus on vital issues to take note of in technical analysis to maximize profits.
Risk Management
Do you know why you keep losing money even after applying technical and fundamental analysis?
The sole reason is poor risk management.
It is the most important but least discussed topic in trading. It serves as the foundation of every successful trader.
What Is Risk?
•Your exposure of losing some or all of your initial investment when trading or investing is known as risk.
What Is Risk Management?
•It consists of a wide range of tools and techniques used to manage the risk.
Risk management is divided into two parts:
1. Trading system and testing
Decisions you need to make for a successful trading system:
Markets - What to buy/sell
Strategy - How to buy/sell
Position size - How much to buy/sell
Entries - When to buy/sell
Stop- When to exit
Take profit - When to book profits
2. Portfolio management
Asset allocation
Diversification
Rebalancing
Dow Theory
Dow theory aids traders in understanding market movements better. There are six tenets of the Dow theory.
The market discounts everything
There are three market trends; primary, secondary, and minor.
These trends have three phases; accumulation, re-accumulation, and distribution.
Averages must confirm each other
Volume must confirm the trend
Trends continue until a prominent reversal takes place
The Dow Theory still holds in today's trading environment despite being more than a century old. This is so that traders can benefit from identifying and capitalizing on market trends by comprehending the Dow Theory.
Market Structure
Market structure is a picture of evolved price action, which fluctuates and changes over any given period, moving upward, downward, or sideways. The outcome of these changes determines how the market is structured.
Trends- Trends produce some of the cleanest, simplest trades, and their structure is frequently characterized by a significant imbalance between buying and selling pressure.
However, market trends do not always occur.
Pullbacks- Usually, the market will enter a pullback after an impulse move. A pullback is a countertrend movement against the initial trend's direction. In other words, a pullback in an uptrend drops against the impulse to move upwards that came before.
Trend analysis
Trading Ranges- There's one type of trend left, which is sideways movement/range. When the price doesn't move in a particular direction, it starts moving sideways. This sideways consolidation can act as an accumulation, distribution, or trend continuation.
Final Thoughts
Technical analyses become relevant and insightful only when the market moves a certain way. It cannot predict movement that needs a fundamental background analysis. However, technical analysis is not enough.
Technical analysis must be used together with fundamental analysis. Fundamental analysis makes one aware of short-term market sentiments. Thus, a combination of the two gives better trading results.
Comments