Technical Analysis: Basics
Both experienced pilots and beginners probably know that intuition alone will not be enough to win the space race. What do you need then to get to the top of the standings? Understand what technical analysis is and use technical indicators correctly. This is what we are going to discuss in today’s article.
Technical analysis is the prediction of market behavior in the future based on past data using tools such as charts, indicators, and so on. Thus, given the already available information, we try to predict how the price of an asset will change.
Technical analysis is based on three basic principles:
- The market price contains all the required data. According to this postulate, the chart contains all the necessary information for the trader to make a decision. That is, it is assumed that the price instantly reacts to all events that may affect it.
- Price dynamics depend on market trends. A market trend can be either upward (the market is rising) or downward (the market is falling). Moreover, if the forces of buyers (bulls) and sellers (bears) are equal, prices can fluctuate in insignificant ranges. This phenomenon is called a flat (neutral trend). At the same time, any trend has a beginning and an end. According to their duration, trends can be short-, medium-, and long-term.
- History repeats itself. There are certain patterns in the market, and if in the past, under certain conditions, the price followed a particular model, it is likely that in the present, under similar conditions, it will repeat this trend, that is, it will change in a similar way.
The most objective information about the market is reflected in the price chart. All existing indicators and models are usually based on the following 5 indicators:
- opening price — the price level at which trades were opened (i.e. started) during the specified period
- closing price — the price level at which trades were closed (ended) during the specified period
- maximum price — the highest price at which the deal was made in the specified period
- minimum price — the lowest price at which the deal was made in the specified period
- trading volume — the number of transactions made in the specified period
For convenience, you can select different time periods, or timeframes, on the charts. This helps to optimize the process of analysis. In technical analysis, he following timeframes are mostly used:
- 1 minute
- 5 minutes
- 15 minutes
- 1 hour
- 4 hours
- 1 day
- 1 week
- 1 month
How to choose a timeframe?
The choice of time period depends on the goals of the trader, as well as the number of deals that they make within a certain period, and the chosen trading strategy. Schematically, this can be represented as follows:
Thus, first you need to choose the strategy and the volume of the trade, and then — the corresponding timeframe. For example, if you chose the long-term strategy, you do not need to analyze the minute charts, because you need a more complete picture. Conversely, for intraday trading, you will need more detailed information about the price fluctuations.
Please note that technical analysis does not explain the reasons for the price change, it only helps to understand the dynamics of the market and predict its further behavior. But this is exactly what you need for racing in TO THE MOON Game. This is why reading charts is such an important skill for all pilots, regardless of their experience.