Technical analysis, which is actually working with charts and tools, is a special type of analysis that predicts future market behavior based on previous price movements and trading volume data.
Technical analysis was first used in the 17th century in Amsterdam, the Netherlands, and in the 18th century in Japan, but the modern form of this analysis began with the work of Charles Dow, creator of the Dow Jones Industrial Average Industrial Economic Index.
This type of analysis, which is used in traditional financial markets such as stocks and stock exchanges, can also be used in the digital currency market.
Although in technical analysis you are dealing with indicators, numbers and charts, this analysis is a kind of study of human behavior in financial markets. Behaviors that are associated with human emotions and sometimes manifest themselves in the form of fear and greed in different situations.
It should be noted that all traders who buy and sell a stock on the stock market or a digital currency in exchanges actually form a “market" for that digital currency or stock, and it is the “feelings" of these traders and investors that determine the price. he does.
In other words, the forces of “supply" (Supply) and “demand" (Demand) that form the core of the financial markets arise in a way from the emotions of traders, on the basis of which price movements are formed. So technical analysis can also be defined as a kind of analysis of human behavior.
It should be noted that a more accurate answer can be obtained from technical analysis in markets under normal conditions with high trading volume and liquidity.
Technical analysis, right or wrong procedure?
Remember the last time meteorology provided accurate forecasts? Some of these predictions may not have come true. In many cases, even anticipating work seems futile because many of them predict the wrong outcome. However, why do we still listen to meteorological forecasts?
Predictions are generally useful because they prepare us for what is likely to happen. For example, if the weather forecast is rainy, we will take an umbrella with us to make sure, and if the sun is forecasting, we will wear our sunglasses. We know that we may not need our equipment, but we will be ready for it anyway.
Technical analysis is very similar to meteorological forecasting. Technical analysts know what to look for, but they also remember that prices don’t always go well with them. Let’s look at some of the reasons that meteorological forecasting is similar to technical analysis:
1. In meteorological forecasting, temperature and pressure are measured, and using this information, climate change such as fronts and low-pressure and high-pressure areas are examined. In technical analysis, the parameters of price and trading volume are used as inputs to inform us about market movements such as fear and greed, trends, return of trends, and so on.
2. Despite access to large amounts of data in meteorology, personal experience and understanding are still used in the final forecast. Technical analysts use the same experience in many cases.
3. Accurate weather forecasting depends on the individual’s knowledge of local information and climate. Supposedly, if the fortune teller migrates from Texas to Alaska, it will take some time to get acquainted with Alaska’s climate. The same is true of technical analysis. Those who trade in the New York Stock Exchange need time to get used to the commodity market or the digital currency market. Because big stock markets are different from small stock markets.
4. In the early days of meteorological forecasting, some profiteers tried to convince people that they could control the weather, or at least had very accurate weather forecasts that would never go wrong. Unfortunately, in the field of technical analysis, there are people who insist on the incompleteness and permanence of their analysis.
5. Meteorological forecasts usually come right out of the water when things don’t change. If the sky is sunny in the last three days and there is no big water front, it will probably be sunny today. Technical analysis usually works well when important news or a specific event does not occur. With big changes, it is very difficult to predict exactly both in meteorology and in the financial market.
6. Meteorological forecasting and technical analysis are usually used on a larger scale. As forecasting is possible for a large city, it is very difficult for areas of the city. The same is true of technical analysis, as it is very difficult to predict the market in seconds and the use of daily or weekly analyzes can be more effective. Also, predicting the weather of a country or a financial market over a long period of time may not be of much use.
Try to remember this comparison between air forecasting and technical analysis to be aware of the advantages of this analysis and its limitations.
Published and authored by FalconProfit.com
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