When you hear the term technical analysis, you might think it's just complex charts with lines drawn on the graph. But the truth is that technical analysis is much broader and deeper than that. It is the language of the market that traders use to understand price movements and predict what may happen in the future.
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✨ Definition of Technical Analysis
Technical analysis is the study of historical price movements using charts, with the aim of inferring future market trends.
Think of it as an attempt to read the "fingerprints" of supply and demand that buyers and sellers leave on the chart.
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📊 The philosophy behind technical analysis
Technical analysis is not based on random predictions, but on three main hypotheses:
1. Price reflects everything
That is, all news, economic data, and psychological sentiments of traders ultimately manifest as price movements.
2. Prices move in trends
Markets tend to move in clear paths (upward, downward, sideways), and the goal of technical analysis is to recognize these trends early.
3. History repeats itself
Trader behavior repeats over time, therefore, patterns and models that appeared in the past often repeat in the future.
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⚖️ Technical analysis or fundamental analysis?
Fundamental analysis: focuses on news, economic events, and the value of the project or currency.
Technical analysis: focuses solely on price movement itself.
Professional traders often use both together: fundamental to determine what to buy, and technical to determine when to buy or sell.
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💡 The importance of technical analysis for the trader
Helps in knowing the general direction of the market.
Identifies support and resistance areas, which are keys for entry and exit.
Provides signals that help the trader make decisions based on logic, not on emotion or luck.
It can be applied to any market: cryptocurrencies, stocks, forex…
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✅ Conclusion
Technical analysis is not a magical tool that guarantees you will predict the market with 100% accuracy, but it is a practical framework that helps you understand the market and increase the likelihood of your decisions' success.
It is like a magnifying glass that allows you to see what others cannot see with the naked eye.
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📚 About this series
This article is just the beginning.
In this educational series, we will take you on a gradual journey to understand technical analysis:
We start from its history and inception.
We go through its basic tools like support and resistance and trend lines.
We move on to technical indicators and candlestick patterns.
Then we conclude with you some practical strategies and risk management.
Our goal is for you to end up with a solid knowledge base that makes reading the chart and making decisions in trading clearer and easier for you.