Introduction To Technical Analysis 001

in education •  last year 

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Hello Steemians! I have great news. As you all know, I had my last lesson on the "its all about crypto" series last week but, I have come with an amazing news. Starting from today, I would be starting a new series on "Technical Analysis." So, if you are looking to learn about technical analysis, you have come to the right place. Maybe you want to learn how to trade the forex market, stocks or even the crypto market but you have little or no understanding of chart and chart patterns, this series would definitely help you. So, I welcome you to the first ever, "Introduction to Technical Analysis 001."

Let's get started...

Let's Talk...

The idea of analysing the market came as a result of players wanting to achieve more success in trading by knowing how to predict market behavior in other to know when to buy and when to sell. This immediately led to the rise of the two ways of market prediction analysis. Which are:

  1. Fundamental Analysis.
  2. Technical Analysis.

Now, you should know that the two of them are so important and can be used side by side in market predictions but this series is majored on technical analysis.

Well, just to give you an idea of what fundamental analysis is all about, let me define it for you. Basically, fundamental analysis is a method of predicting market movements using various fundamental factors like:

  1. Political condition of a country and economic strength (for the forex market).

  2. News on investors in the crypto market and news affecting the crypto market.

Basically, it is the method of trying to predict the market using news and other fundamental factors.

Technical Analysis

This is the method of trying to predict the market through the use of graphic charts and some technical indicators. It is also the study of previous or past price fluctuations with the aim of predicting the market price or market movement.

Note: You should know that in technical analysis, we make use of past data, together with the present data to predict future price movements.

Past + Present = Future

Technical analysis through the years, has made the life of so many traders so much easier. Also, this method of analysis can be on several time frame and on various trading instrument like the forex market, stocks, crypto market, futures, indices and so on and so forth.
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Also, you should know that technical analysis can be easily learnt, mastered and used by anyone, irrespective of age or previous knowledge on business.

In summary, technical analysis are tools or sets of tools that can be used for predicting future price movements and price fluctuations and also for identification of trends using past price records.

Who Uses Technical Analysis?

It won't be a surprise to know that most traders uses technical analysis because without it, how else would you know where to place trade entries and exits in the market. So almost everyone uses technical analysis, from institutional traders, to retail traders, to advanced traders and even market makers and all uses technical analysis. It is more like a vital tool in almost every trader's tool box. Well, except you are a long term trader, that's, you trade from 3months to a year or more, every other trader would need technical analysis.

What Are The Importance Of Technical Analysis?

  1. Technical analysis gives you an upper hand in price prediction by just paying attention to price action or price movements.

  2. Technical analysis increases your chances of making continuous profits as a trader and helps in stops loss placements, targets placements, support and resistance placements.

  3. Technical analysis gives you a better feel of price by presenting you with previous price movements or price action

Charts

A technical analyst uses charts for price prediction. These charts are a graphical display of historical price or market data. A technical trader has several options of historical price action periods. Like the intraday charts, to the daily or weekly chart. These charts can be used interchangeably for a better chance of predicting the price.

Long term traders or analyst uses long term charts like the weekly chart or the monthly chart, while shorter term trader or day traders uses the 1min, 5min, 15min, 30min, 1hr, 4hr or daily chart interchangeably.

Charts are used to define entries and exits. For identification of trends, support and resistance lines etc.

Types Of Charts

  • Bar Chart
  • Line Chart
  • Candlesticks Charts.

The Bar Chart

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The bar chart is not usually used by traders but an understanding of it would help. Before the popularity of candlesticks charts, it was well used by most traders though.
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A bar chart uses vertical or single lines on a chart to showcase or mark the trading range for a particular period. A mark to the right shows the closing price. A mark to the left shows the opening price.

The Line Chart

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This chart is used by most traders, including me to mark out clean support and resistance line on a chart. The line chart uses the closing price for each periods.

The Candlestick Charts.

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This is the most popular chart, used by all traders. It incorporates the high, low, open and close price for a particular period. The length of the candle shows the trading range for that period. The body of the candle shows the trading range between the open and the close price.

Note: If the opening price is lower than the closing price, the candle is coloured green or white, indicating a buying pressure or bullish momentum. Also, if the opening price is higher than the closing price, it is coloured red or black, showing a bearish momentum or selling pressure.

A bull is a person that is optimistic about price. He/she wants the price to go up.

A bear is a person that is pessimistic about price. He/she wants the price to go down.

On a daily chart, as show below, one candlestick shows one day of price action. So, if the candle's colour is red, it was a bearish day. Also, if the candle is green, it was bullish.

Also on an houly chart, One candlestick, shows one hour (1hr) of price action. So, depending on the chart, would determine the candle period.

The wicks or shadow indicates the high or low of that period (be it a 4hr, daily or weekly chart period), whatever it is, that wick would show the high or low of that period.
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This would be all for today. Hope you learnt a lot? See you in the next class, which would be next week. Bye for now!

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The Life Of A Trader

Thank you for reading...

A special thanks to all my followers...

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