Club5050-Understanding The Basic Concepts Of Technical Analysis (Part 1).
Greetings everyone.
Understanding the basics of technical analysis adds up to a successful and profitable trading. Before you start using any of these technical indicators, as an investor you need to understand the primary concepts of technical analysis which I will be talking about today.
There are several basic contents that make up technical analysis and some of these includes long position, shorting, market order, limit order, stop-loss order, order book, order book depth and many others. All these basic concepts of technical analysis are very important, as it will help make your trading and investment very simple and easy to make good use of the market. I will be dividing these particular post into part 1 & 2 due to how the concepts are many.
Now let’s begin with understanding what these technical analysis terms are in the crypto market.
When we say long position in trading it simply means buying an asset with the expectation that its value will rise. Normally, long positions are usually used in the situation of derivatives products, but they can also be applied to any asset class or market type. Again, buying an asset on the spot market with the intention that its price will rise also constitutes a long position.
Using the long position way on a financial asset is the most common way of investing, especially for beginners. The main or basic idea behind a long-term trading strategy like buy and hold is based on the assumption that the underlying asset will rise in value. With this, buy and hold is simply going long for an extended period of time for an asset.
Furthermore, being long does not automatically mean that the trader or investor expects to gain from an upward direction in price. Let’s consider leveraged tokens, for instance. ETHDOWN is contrarily correlated to the price of Ethereum. So If the price of Ethereum rises, the price of ETHDOWN goes down. And again if the price of Ethereum goes down, the price of ETHDOWN goes up. This simply means that, entering a long position in ETHDOWN is equal to a downward movement in the price of Ethereum.
A short position or shorting is the alternative of long position. Shorting simply means selling an asset with the intention of rebuying it later at a lower price. Shorting is somehow related to margin trading, since it may occur with borrowed assets. However, it can also be used in the derivatives market, and can be done with a spot position. Now let’s see how shorting works.
It is very simple when it comes to entering a short position on the spot market. Assuming you already have Ethereum and you expect the price of Ethereum to go down. You sell your Ethereum for USDT, with the intention of rebuying it later at a lower price. This simply means that, you are essentially entering a short position on Ethereum since you are selling it at a higher price to rebuy it at a lower price. Very easy. But what about entering a short position with borrowed funds? Let’s look at how that also work.
You have borrowed an asset that you think will decrease in value. Then you instantly sell it. If the trade goes as you predict and the price of the asset decreases, you buy back the exact quantity of the asset that you have borrowed. You pay back the asset that you have borrowed (with interest, that is if there is any)and profit from the difference between the price you initially sold and the price you rebought.
Let’s look at shorting with respect to borrowed Ethereum. Let’s consider this example. You borrowed 1 Ethereum, then sell it for $10,000 straight forward. Now you have with you $10,000. And then the price of Ethereum goes down to $8,000. You buy 1 Ethereum and pay back the 1 Ethereum with interest. Since you initially sold Ethereum at $10,000 and now bought back at $8,000 l, you will have a profit of $2,000.
Oder Book is a collection of open orders for an asset currently. It is usually organized by the price of the asset. When you place an order in the market which is not filled instantly, it simply means that it has been added to the order book which contains different orders. It will keep being there until it gets filled by another order.
Most at times order books differ slightly with each platform, but always contain the same information. You will always see the number of orders at different price levels.
Now, when it comes to crypto and trading online orders in the order book are are assigned to a system known as the matching engine. This system is responsible for executing trades. It is sometimes referred to as the brain of the exchange. In electronic exchange, the system in addition to the order is seen to be the core or primary concept.
With regards to what I have been able to explain today I think it is enough to give a brief idea about what the basics of technical analysis are. Although I will be continuing with the part 2 in my next post and will be explaining more on the remaining concepts of technical analysis.
Hope you enjoyed reading through my post and I will be publishing the continuation within the week. Have a nice day and be safe.
Thank You All!!
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Understanding technical analysis is a core course for every trader who really want to reduce his loss and make profitable trade. Thanks for sharing this. I learnt from it.
I’m glad you learned something new from my post.
Today you have taken very important article for Technical Analysis knowledge. Actually, I am much familiar with this Order Book and I am using it as a Trading strategy to trade all the Cryptocurrencies.
Great reading about these concepts. U have written well.
Every trader who truly wants to cut his losses and produce lucrative trades should take technical analysis as a core course. Thank you for providing this information. It taught me something.
Positioning is very important in trading. Profit or lose margins can be determined through this. Thank you for such an informative post