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Introduction to Technical Analysis

Two Types of Market Analysis

You may have known that there are two main types of market analysis to help you decide when to make a trade - Technical Analysis & Fundamental analysis.

Technical analysis can be used on any underlying assets with historical trading data, such as stocks, futures, commodities, fixed-income, so apparently, it applies to the cryptocurrency market. You may also find traders distinguish themselves as either technical or fundamental analysts. Actually, knowing these two forms of analysis will give you a better understanding to trade in the financial markets.

What is technical analysis?

Unlike fundamental analysis, which attempts to evaluate the underlying asset’s value based on sales or earnings of a project, the wider economic factors that can affect its price, token usages, token holder numbers, etc,. While technical analysis focuses more on the study of price and volume, and the price movements of a market. Technical analysis has a big premise that:

  1. Markets are efficient with values representing factors that influence a security’s price, but
  2. Even random market price movements appear to move in identifiable patterns and trends that tend to repeat over time

Because there are certain types of behavioral patterns that have occurred repeatedly in the past, it's possible that we could identify them as they emerge and predict the likely future movement of the market. Although of course, you have to remember this can never be guaranteed, which means technical analysis shouldn't be used in isolation. Traders use technical analysis tools and methodology to study the historic price movements of the markets. By examining the trends and patterns in market prices, technical analysts can interpret the behavior of buyers and sellers to help give an indication of where the market could go in the next stage. Technical analysis tools are used to scrutinize the ways supply and demand for security will affect changes in price, volume, and implied volatility. In general, technical analysts look at the following broad types of factors, so we prepared a series of foundation articles focusing exclusively on technical analysis, including:

  • Support and resistance levels
  • Line Chart and Candlestick Chart
  • Breakouts and fakeouts
  • Trends and channels
  • Chart patterns

Key Takeaways

  • There are two main types of market analysis: Technical Analysis and Fundamental Analysis
  • Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities in price trends and patterns seen on charts
  • Technical analysts say what happens in the past can be used to predict what might happen in the future
  • By studying trends and patterns in market prices, technical analysts forecast which way the market might move next
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