When you start trading, you have to learn a lot of things about it. You cannot jump in the market and think that you are going to win every trade that you become a part of. There are dozens of factors that you have to consider while trading. The only point of those considerations is to increase your chances of making profitable trades. Among many other things, you have technical and fundamental analysis. These are the two types of analyses that you have to do in the market to speculate and forecast the prices of a particular asset. You have these analyses available for all the different types of asset and financial markets.
If you are thinking about trading cryptocurrencies, you will still have to familiarize yourself with these analytical processes to make sure that most of the trades that you participate in are successful. Neuercapital explains it in detail. Here is a beginners guide to technical analysis that you can get help from to understand what technical analysis is, the purpose of its existence, and how it differs from other types of analyses in the market.
Understanding the Basics of Technical Analysis
So, the first thing you have to know is that when you are doing technical analysis, you are doing it for a particular asset in the market. In short, you will not analyze the entire market with all the assets in it because that does not make any sense. You will first have to pick a particular asset and then analyze it through technical processes. Right now, you can take the example of a cryptocurrency. You can take bitcoin for example. When you analyze this cryptocurrency technically, you will take into account its price and volume.
These are the only two factors that you consider when you are doing technical analysis. Yes, it might seem like a pretty “technical” word but what you are doing in these analytical processes is pretty straightforward. Yes, the complexity comes when you apply many different methods of analyzing the price charts of particular assets.
Here, you should also understand the difference of technical analysis from fundamental analysis. In fact, these are the only two types of analytical methods that are used in all the financial markets of the world. So, when you are analyzing a particular asset technically, you are only looking at how much its price moved in the past and what the total volume of all the changes was. On the other hand, when you consider fundamental analysis, you have to look at the factors that affect the value of the asset other than its price. In other words, you are looking at factors that impact the price and value of an asset.
For example, if you want to analyze bitcoin technically, you will go into the charts of its value. You can find these charts easily when you go on a cryptocurrency exchange on the internet. With the modern web applications, you can see the charts from the date when bitcoin came into existence. The price movement of bitcoin since its inception is what you will be considering technical analysis. On the other hand, you will look at the political impacts and the effects of regulations on the price of Bitcoin when you are doing fundamental analysis.
The difference between the two is huge, but you cannot say that one is better than the other.
When Do You Use Technical Analysis?
So, as mentioned above, you can’t really prove that one is better and more effective than the other. The only thing that matters is the time when you use either. When you are trying to enter the market and make profit from your trade instantly, you would want to go with the technical analysis that tells you what the price movements of the asset have been in the past few hours, days, or weeks. On the other hand, if you want to have long-term gains from a particular asset, you would look at its fundamental analysis.
You will consider the political conditions, regulations, market sentiments, etc. to ensure that the investment you are about to pull off is going to benefit you in the long run.
Is Technical Analysis Any Good?
That’s probably the most important question that any trader should ask. Whether you are trading cryptocurrencies, stocks, forex currency pairs, or some other asset in a financial market, you have to make sure that the methods you are using in your trading strategies really work. When it comes to technical analysis of a particular asset, you can say that it works for some and does not work for others. It all depends on which methods you are using within the technical analysis to come up with the decisions on your trades. There are many different technical methods that have been proposed by different experts over the years to predict price patterns.
Things work differently for different types of assets. You can say that the best way to trade safely is to look at both analytical methods side by side. There is no reason why you should ignore one and focus only on the other one. Not to mention, you can get just about any information about an asset you want on your trading platform today. You will be surprised to know that if you start trading cryptocurrencies with an online broker, you will get access to trading signals. Trading signals are more like the results from technical analysis that have been done by super fast machines or the best experts in trading.
In simple words, you might not even have to do technical analysis when you just start trading. However, as time passes, you should learn to technically analyze the assets before you put your money on their trades.
It does not matter which particular type of analysis you choose for your trading style unless you throw emotions out of trading. It is unfortunate but new traders would prefer their emotions over any technical or fundamental analysis. Make sure you trade like a professional, and if you have chosen to go with technical analysis, you stick to them.