Can We Trust Chart Analysis?

Perhaps one of the misconception you might have heard the most in trading coin is “Chart’s don’t work”

As a trader myself, charts related to the technical analysis is quite useful in doing successful tradings. People saying “Chart does not work” usually encounters lack of fundamental understanding of how the markets work, and also has a misunderstanding of chart and technical indicators.

Market Psychology

Human Psychology is at the basics of all investment decision made by investors. Most of these people that are investing in specific crypto with intention of making money. They aren’t doing so because they love the specific coin so much. So, let’s say you bought a big amount of coin at $1000, and after few months, price reached $2000 per coin. At this point, you have already made 100% profit.  The fact that the price of your stock has gone up means two thing

First, greater demand over buying pressure. Before the price rose from $1000 to $2000, there had to be shifts in the market where more people willing to buy the coin at $1000 than there were willing to sell. As a result, all the people that were willing to sell the coin at $1000 either already might have sold their holdings or made a decision to ask for higher price, realizing that the forces are acting strong on the coin.

Second, sellers are sitting back. People that were selling their coins are now reconsidering. Now that they see the price is rising, they are starting to withdraw their sell orders because they know that the demand is going up, which will eventually raise the price.

These two factors is the reason that creates a bull run in any stock or security.

On the other hand, what brings price down is the fact that at a certain point, people realizes why they would pay such expensive price for the coin. Eventually this will lead to fall in price and new investors won’t want to enter into the market. $2000 could be the threshold where people thinks that the price of the coin is way too expensive for the specific coin, no matter how good they think it is. The buy orders will start to decrease quickly. Those that bought the coin for $2000 will realize that there is barely anyone that are willing to buy it for price above. Those who bought the stock at $1000 will feel that the price is reaching a highest, will probably sell at the $2000.

After reaching the tipping point, people will are only willing to buy at price a bit lower, let’s say $1900. However, those who bought at $2000 will start to panic and try to sell to minimize their loss. But due to less demand, the price will fall more to $1800. As this situation goes on, the price will fall rapidly.

The amazing thing about technical analysis is that it helps us to determine how the market is shifting at a particular time. If you’re a smart investor, you know that there is so much information you could learn from the chart at a given point in time. All these technical analysis represents a methodology of trading that shows statistical analysis of market, including volume and prices.

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