Lesson 1

Introduction to technical analysis

Preamble :

This brief introduction will be focused on the development of technical analysis within history.There is no need to learn any historical aspects but it is useful to know where and when it all started.

Japanese are said to be the first to use technical analysis to trade the rice markets in the 17th century.During this era, a harvest could be sold in advance (kind of like futures contracts) which led market participants to speculate on rice's rate.

A man called Munehisa Honma discovered that markets were influenced by psychology and emotions of participants. He understood that price and value were two distinct concepts. And this is probably when the concept of speculation was understood.

The first revolutionary tool used to analyse markets with precision was the Japanese candlestick chart (sided picture) which describes price movements over a a determined period (interval).We don’t know exactly when it was introduced but we can assume it was first used during the Meji period (mid 19th century).

Since then, many tools have been introduced to help traders in their analyse of market players’ psychology.With this series of lessons, you will find explanations and pro tips on how to properly use numerous tools that we use in our trading strategy.

Technical Analysis VS Fundamentals :

Before starting with technical analysis, we need to precisely define it and distinguish it from fundamental analysis.

Price action is the only concern of technical analysts. Fundamentals analysts trade or invest mostly based on upcoming good news (or even rumors) for the project/company, the technical aspects of the project, the companies's financial conditions… All these things barely matter to technical analysts, of course some events, news or rumors can act as triggers or catalysts for moves to happen. But the trend is king and that's what truly drives the price. Holding an asset all the way down because you don't do TA and only take decisions based on fundamentals doesn't work – following the trend does.

As a technical analyst, you will rely on previous price action, analyze it with a couple tools (no need to use more than a few of them, less is more) then gauge probabilities of the price going up, down, to certain targets, or just stand still.The only ressource you need is the chart, your brain, and nothing else!

There is an existing myth amongst many uninitiated people that think TA is not reliable particularly in the cryptocurrencies markets. My guess is that these people expect technical analysis to be a divination tool. They are wrong.

Candlestick chart of Ethereum on a daily timeframe

TA should not be seen as an exact science either, but more as an art, you need to be adaptable and let the chart guide you.

Nailing every single trade is not needed (and no one has a 100% success rate) to make a lot of money. The most important thing is to have a stable strategy that allows you to win in the long run.

All you want to do and I am certain that most of you will learn and follow this rule by taking this course is that while you make your first steps into TA, you should also start to remove the bias you have towards any asset, any project, just because you own some of them. FA is an important and a great skill to have but it is a completely different way of playing that suit the “investor” game more than the “trader” one. Every person that wants to be a trader has to start with learning technical analysis. Late 1999, many financial analysts were bullish little time before the dot com bubble burst in March 2000.

The spectacular rise and insane performances of previous years biased their ability to chart and made them lose the control of their emotions which is one of the key to keep your analysis rational and unbiased.

In coming lessons, we will review the most popular tools used by the best traders around the world. You will learn to apply a proper money management strategy for each position you take in order to safeguard your capital.

Embrace the learning process and don’t forget to stay open minded

Warren Buffet once said : « Risk comes from not knowing what you’re doing »