The Fundamentals of Technical Analysis

Let’s talk about technical analysis

Technical analysis is used quite a lot in the crypto space, arguably more than in stocks. That being said there is a lot of controversy on how much value and trust one can put into TA (technical analysis). In this article, we will share some of our thoughts on the matter, and the most important parts of TA that we in NCG use.

Always mix with fundamental

“One should never invest based on price action” this is a fundamental rule we in NCG stand by. If this rule would be ignored, one would `trade`, not invest, as there is a difference. That being said, technical analysis can be a great indicator when used together with great FA (fundamental analysis).

The reason we stand by this rule is simple: Price action, can in the short run be based on TA. In the long run, however, the only thing that will move the price is the fundamentality of certain asset. For instance, housing prices can go up and down when you look at the price action in a short time span, but will “always” go up in a longer timeframe perspective. We use “always” very lightly here. The reason for this is there is a finite amount of land, and the population keeps going up. Simple supply and demand. If one of the metrics would change, that would also change the price action. For instance, a decline in world population, would also directly affect the demand.

In what way do we leverage technical analysis?

In NCG we leverage our use of TA for two specific purposes. First entry-exit point, and to figure out If certain assets are short-term overvalued, or undervalued.

Resistance/support lines are some of the most used forms of TA used, and it’s true within NCG as well. A more in-depth article on technical analysis will be published in the future, for the time being, we have thrown in some examples of a typical technical analysis.

In this example we have a a technical analysis of Disney. What we see are two very clear lines, the lower green line is support, and the upper is resistance. We see it clearly, the way the price touches several times and turns straight after is quite the confirmation. Both these lines create what one would call a symmetrical triangle

Here is a visual presentation of how a symmetrical triangle should look like. If you were to buy as the price closes in on the support line, and then close at resistance and re-enter if there would be a breakout. If the price would close under support we would close the position.

This is how DIS looks like now. The price action followed our optimal scenario! What would be ideal to know is if it would rebound and use the previous resistance as a new found local support. This setup would go under the category of a typical swing trade.
Remember how we said one should use active FA combined with TA? Well, there is a fundamental analysis done on Disney before going into this setup. To keep things short, we looked at Disney as a sound company. Not too overvalue,d but with a simple and expanding business model, and we believe their streaming service release in 2019 can rival the likes of Netflix and HBO, considering the amount and quality of movies Disney own. Simply put, we see a good risk to reward ratio.

This is a brief introduction to some of the investing principle we in NCG stand for. we will be continuing to post updates on the crypto markets and also go more in-depth on the some of the principles of TA.

To find out more about Norway Confidential Group, visit our website and follow us on twitter @NCGNorway for updates on new articles and technical market analyses.

The content provided in this article belongs to Norway Confidential Group and all information in this article is not intended and does not constitute as legal or investment advice. Please do your own research.