In the same way as a doctor conducts diagnoses of diseases by analyzing the symptoms and examinations, a trader has the obligation to recognize the standards that best suit him than simply follow recommendations in the dark or waiting for someone to decide for him.
There will be a few posts explaining how the market operates, how market forces interfere with asset prices and how to use this information to to win.
The episode 1 is very simple. It was made for beginners start to have another vision regarding graphics. Feel free to tell me any comment, suggestion, etc. I hope you enjoy :)
For startes, never forguet:
The main mistake of many traders is to think that they will become rich very quick. However, this "get-rich-quick" mentality is one of the reasons which determine the early termination or decrease of a trader's longevity. Long-term success is the result of small victories accumulated over the way.
1. Introduction to technical analysis
If you want o make money by doing trades in the cryptocurrency market you need to learn the basics of technical analysis. For an example: the market is bullish or bearish?
- Bullish: Investors who believe that a stock price will increase over time;
- Bearish: Investors who believe that a stock price will decline.
1.1 What is technical analysis?
It is the market study based on the laws of supply and demand. These two forces are responsible for the movement of all asset traded in the market and, through the charts, the technical analysts are typically able to anticipate the points at there are changes the balance of these forces.
Supply and demand are the only factors capable of directly impacting price behavior.
One of the main objectives of the technical analysis is to identify and exploit the psychoanalytic practices left by the players involved in the negotiations. Graphics are a key component in the perception of movements. Analyzing the formations printed on the graphs of an action, we can identify the regions that the traders think they are the most important. This is how opportunities are born.
2. Candlestick graph
This kind of graph register the opening, closing, maximum, minimum and direction of the moviment in any periodicity you choose. Following an example of candlestick graph:
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2.1 The messages behind the candles
In these charts, each bar represents a unit of time - on the daily chart, for for example, each vertical bar represents a day. The gap between the opening price and the closure is known as the candle real body.
Types of candles:
- Low candle: closing price smaller than the opening price. Following an axample of low candle:
) - High candle: closing price bigger than the opening price. Following an example of high candle:
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Although simple, this graphical representation carries with it essential data for understand how the clash between supply (sellers) and demand (Buyers). We can also verify how volatile (how fast an asset distances) and directional was the movement represented by each one of these units.
2.2 Maximum and minimum
The first signs that you must learn to identify are the minimum and maximum of the analyzed periodicity, better known as tops and bottoms.
- Fund: By definition, a fund can be understood by any unit (candle) that is lower than the minimum candles formed on the right and left. Following an example of fund:
) - Top: It is characterized by any candle that the maximum is greater than the maximum of the candles formed on the right and left. Following an example of top:
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Now is possible to be seen that the market moves from a fund to a top and from a top to a fund.
2.3 Support and Resistence
Support and resistence are the region where concentrate the highest indices of supply and demand.
- Support: will be found in areas where there is a great demand just waiting for the moment to absorb all the offer that exists there. Basically is where the investors believe that the price is cheap.
- Resistence: reside in regions where there is an oversupply. Basically is the region where the investors wish to garantee their profits.
Following an example of support and resistence:
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Support and resistence are valuable regions to which we must constantly be attentive, because they can tell us a bit about the movement that prices can perform. In turn, we can also use this information to reduce our risk and increase the likelihood of finding an ideal entry point.