![]() ![]() The high-volume markets are less susceptible to price manipulation and abnormal external influences that could create false signals and render TA useless. Noteworthy, TA is considered more reliable and effective in markets that operate under normal conditions, with high volume and liquidity. ![]() In other terms, the price of an asset is a reflection of the opposing selling and buying forces, and these forces are closely related to the emotions of traders and investors (essentially fear and greed). The main underlying assumption of technical analysis is that fluctuations in the price of an asset are not random and generally evolve into identifiable trends over time.Īt its core, TA is the analysis of the market forces of supply and demand, which are a representation of the overall market sentiment. In the early stages, the rudimentary approach of technical analysis was based on hand-made sheets and manual calculations, but with the advance of technology and modern computing, TA became widespread and is now an important tool for many investors and traders.Īs mentioned, TA is basically the study of an asset’s current and previous prices. ![]() His work later gave birth to the Dow Theory that encouraged further developments in technical analysis. A financial journalist and founder of The Wall Street Journal, Dow was among the first to observe that individual assets and markets often move in trends that could be segmented and examined. While primitive forms of technical analysis appeared in the 17th century Amsterdam and 18th century Japan, the modern TA is often traced back to the work of Charles Dow. Therefore, it is utilized as a tool to examine an asset's price fluctuations and volume data, and many traders employ it in an attempt to identify trends and favorable trading opportunities. ![]() In contrast to fundamental analysis (FA), which considers multiple factors around the price of an asset, TA is strictly focused on historical price action. The TA approach is extensively applied to stocks and other assets in traditional financial markets, but it is also an integral component of trading digital currencies in the cryptocurrency market. ![]()
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