The Internet is overflowing with advertisements about cryptocurrencies, trading, and the “success” of traders and investors. Everyone has apartments, cars, and yachts and everyone is trying to sell their story of finding the "Holy Grail". Their stories are based on lines, waves, patterns on charts, indicators, and signals. All these attributes “work” in the eyes of an ordinary person because somehow an ordinary trader has become a member of the “Millionaires’ Club".
But we forget that only trained minds make accidental discoveries. – Blaise Pascal
In order to trade profitably, you need a trading strategy, risk management, and most importantly – sufficient knowledge and understanding of your profession.
Let’s start with the basic idea of what technical analysis of the market is and why it is inefficient.
Technical analysis is a set of mechanisms and tools for predicting price movements based on historical patterns in the past. The basis of technical analysis is the analysis of a price chart.
In the second intermediate online university lesson Resonance you can learn more about what technical analysis of the financial markets is, its history, and the reasons behind it.
In the article “The Portrait of a Professional Trader” we said that most traders try to understand what was, is, and will happen to the price of the asset. But few realize that price is the consequence of volume changes.
One of the most striking disadvantages of technical analysis is the fact that none of the indicators show the real state of the market, because it is impossible to understand by analyzing the price how much money is expected in the bids and how much money has been involved in the trades.
When we talk to novice traders about technical analysis, we often use the analogy of a magician. Think back to when you were a kid and saw magic tricks. Cool, if it was a professional magician or an illusionist. It was the most amazing experience: a miracle happens in front of your eyes and you just refuse to believe your eyes.
Of course, we have grown up and realized that every magic trick has a secret. Some are explained by sleight of hand, some by third parties, some by the amazing laws of physics, some are just illusions and the play of light and shadow.
But there are areas where even adults still believe in magic tricks. For example, the belief that prices somehow magically follow certain laws. The “magic” of technical analysis makes you believe that people, conditions, the global economy, a series of political and social events and millions of other factors must follow a predetermined algorithm.
With us, you risk losing your faith in technical analysis and/or your faith in illusionists. After all, once you know the secret of the trick, you no longer believe in miracles.
Let’s go over it again: the market is supply and demand. We can know exactly what the demand for history has been, we can estimate it at any given time. But in the future…
In trading, people have armed themselves with a lot of tools to analyze history and think that by looking at a chart they can determine future demand. For example, looking at a chart like this… What can this tell a trader?
It’s ok if we are talking about assets where world events are having or will have a direct impact on demand. For example, weather, political or economic events. Of course, very few people take all of these factors into account when trading on Binance. But the usefulness of these indicators is also highly questionable for most assets on сrypto exchanges.
Remember this truth: no one can determine when and at what price a person will want to buy or sell. All you need to know is how to make money in the market!
And it’s simple, and without trying to "think". A speculator’s job is to find assets in the market where there is an abnormal preponderance of supply and demand in the here and now. This is also known as a market inefficiency. You need to make money on these imbalances. Buy only assets that are in high demand and have not yet had time to rise in price. You can sell by setting up take profits in risk management in advance, or you can wait for the balance to shift to the sellers. Either way, a decision should only be made on the basis of the available data, and predictions should be minimized (preferably to 0).
So, we have tried to make it clear to you that it is the volume of supply and demand that matters most. It can be seen in the glass, in the volumes, in the speed of market transactions, and in the ratio of sales to purchases. If it’s not there, it doesn’t matter what the last price on the market is. The volume will still not be realized.
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In the article, we analyze the concept of volatility analysis and its use in trading. Volatility allows you to evaluate how justified the entry is, the optimal distance to the stop, and also estimate possible targets.