What is technical analysis?

Technical Analysis (TA) in Cryptocurrency Trading: Essence and Application

History and Development of TA

The first forms of technical analysis emerged in the 17th century, but modern analysis traces back to the works of Charles Dow, the founder of The Wall Street Journal. His theory became the basis of modern TA.

Principle of Operation

Technical analysis examines current and past asset prices, assuming that price fluctuations are not random and turn into recognizable trends over time.

Tools of TA

Traders use various indicators to study market trends and identify favorable opportunities. Examples include moving averages, relative strength index, and Bollinger Bands.

Trading Signals in Technical Analysis: Key Principles and Criticism

Understanding Trading Signals

Indicators in technical analysis not only help identify general trends but also provide information about possible entry and exit points in the market. Buy and sell signals are generated under certain conditions, such as when the RSI indicator exceeds 70, indicating overbought market conditions, or falls below 30, which may indicate oversold conditions.

Criticism of Technical Analysis

While technical analysis is widely used, critics deem it an unreliable tool that sometimes becomes a "self-fulfilling prophecy." This means that results can be distorted due to mass belief in certain indicators.

Comparison with Fundamental Analysis

Technical analysis focuses on historical data and trading volumes, while fundamental analysis considers a wide range of factors such as company management, market competition, and growth rates. Both methods have their advantages and disadvantages and are often used in combination.

Conclusion

Ultimately, many traders and investors believe that using both technical and fundamental analysis can be useful for making informed decisions in financial markets.