When it comes to cryptocurrency trading, one of the most important things that you need to learn and understand is market analysis. Now, one of the popular types of market analysis is technical analysis. Simply stated, it is the kind of analysis that considers past patterns to assess future situations. If you want to know more about what technical analysis is and whether it does the job, read on.
What is technical analysis?
Technical analysis is simply based on the idea that history tends to repeat itself. It focuses mainly on historical market data like past price trends and trading volume. Naturally, it is less into what a project or coin actually does.
The available data is analyzed to get a clear picture of market sentiments by recognizing the patterns of repeated behaviors. The aim is to help you make well-calculated predictions when the market is trending up (bullish) or down (bearish). In theory, the predictions should let you purchase during slower markets and sell during higher markets to make a good profit.
Essentially, technical analysis assumes that the price movements are not random and past patterns hold true for the future. Though several factors can influence the price movements in a certain direction, the technical analysis only considers the coin price and the demand and supply for the same.
After a coin forms a trend, the technical analysis holds that it is going to follow this trend for opposing it. Thus, when the market remains bullish for a long time, demand reduces for the coin supply for sales and price keeps increasing.
When the price goes up, it is expected to get bearish at one point because people are going to try and capitalize on it by selling the coins. As the selling starts, supply gradually outweighs demand, which makes the prices go down. Thus, the cycle goes on.
In this regard, it helps to use a tool like the one from Yuan Pay Group. It uses advanced algorithmic technology to offer you quality and in-depth market analysis.
Does technical analysis work?
At the end of the day, technical analysis is a broad discipline that cannot simply be filed under ‘works’ and ‘doesn’t work.’ However, the success depends a lot on the one using the analysis. Of course, it is not that complicated and you don’t need to be a math genius, but you might end up misinterpreting it if you don’t pay attention to what you are doing.
When used properly, technical analysis can form a pillar of your trading success and that makes many people swear by it. However, looking at the past is not the only way to predict the future, especially with something so volatile as cryptocurrencies. You need to take multiple factors into account.
Technical analysis is a good place to start, but let’s not look at it in isolation. Look for context when using technical analysis. And, of course, a good tool for market analysis can make life a lot easier for you.
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