Technical Analysis (TA) is the study and forecasting of a cryptocurrency’s (or any financial market’s) price action by using various Technical Indicators, most notably past price and volume.

Key takeaways:

Technical analysis is the study of the historical price action of financial markets seen in charts.
Technical analysis is used to help determine future price activity by analysing trends and identifying price patterns using technical indicators.
Technical analysis is subjective whereas fundamental analysis looks at a company’s financials.

History

Charles Dow pioneered technical analysis in the late 1800s with the Dow Theory when he was studying the movement of an index of the industrial and transportation stocks listed on the market in 1896. Nowadays there are hundreds of indicators available for a technical analyst to use.

Three core principles to understand when using technical analysis are:

The market discounts everything.

Technical analysts believe that all information is priced into the market, even if not everyone knows all or any of these details. This includes everything foreseeable directly or indirectly related to an asset and as soon as new information is brought forward, it gets reflected in the asset’s price.

Prices move in trends.

As put forward in the Dow Theory, an asset’s price is more likely to continue its current primary trend than move erratically.

Charts are smaller trends within bigger trends within bigger trends, repeating. Starting from the higher timeframes (e.g. yearly, monthly, weekly), down to the smaller timeframes (e.g. daily, 12H, 4H ).

A subsequent higher timeframe’s trend (macro) will always have more importance than a smaller timeframe’s (micro) trend.

History tends to repeat itself.

History often repeats itself as human psychology and habits do not change, at the core, we are run by fear and greed emotions – which are priced into the charts. Many chart patterns and indicators are still relevant after 100 years due to the repetitive nature of humans.

Common Technical Analysis Indicators

There are many technical indicators though some of the most commonly used include:

Support & resistance levels
Price trends
Chart patterns
Oscillators
Moving averages (MA)
Volume and momentum indicators

Pros & Cons of Technical Analysis

Pros:

The historical price action of an asset and sentiment can often be analysed quickly in comparison to fundamental analysis.
There are many indicators and tools available today for an analyst to find what works for them.

Cons:

Many technical analysis indicators rely on judgment and are subjective.
There are so many indicators available today, it can get very confusing, overanalysing or using too many indicators can sometimes lead to ‘analysis paralysis’.