By DxOne Exchange on The Capital(Source: Quickmeme)The technical analysis of assets helps traders and investors navigate the gap between intrinsic value and market price by leveraging techniques like statistical analysis and behavioral economics, but in order to be successful, it is based on a few key assumptions about the securities.Price moves in trend: This assumption tells us that all major moves in the market are an outcome of a trend. This is the very foundation of Technical trading, it believes that the market participants consistently react to price movements in a remarkably similar way, each and every time the price moves in a certain direction.Artificial Price Changes Affect the Analysis: Even if there is no difference in the value of the investment, factors like splits, dividends, and distributions can drastically affect the price chart, making technical analysis difficult to apply. Technical traders address this kind of price influence from outside sources by adjusting the historical data prior to the price change.Liquidity Matters: While using techniques of Technical trading, heavily-traded stocks allow investors to trade quickly and easily, without dramatically changing the price of the stock. On the other hand, thinly-traded stocks make it difficult as there aren’t many buyers or sellers at any given time. Moreover, these low liquidity stocks are often very low-priced, which makes them susceptible to easy manipulation by individual investors.‘How’ is More Important Than ‘Why’: For a technical analyst, the price of the stock is the battle between the forces of supply and demand for the company’s stock. Therefore, they are only concerned with what and how questions about the price of the stock and not with why the price is what it is. In cases of extreme news like a sudden change of management, death of CEO, etc. the analyst needs to wait patiently until the chart settles down and reflects the “new normal” that results from such news.Market Discounts Everything: The latest stock price reflects all known and unknown information in the public domain. It is actually the reflection of the sum knowledge of all participants involved, including traders, investors, portfolio managers, buy-side analysts, sell-side analysts, market strategists, technical analysts, fundamental analysts, and many others. Therefore, the price of the asset is used to interpret what the market is saying with the purpose of forming a view on the future.Technical Trading for CryptocurrenciesHow To Trade Cryptocurrencies Using Technical Trading Indicators: Part I [An Overview] was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
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Author: DxOne Exchange
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