Basics of Technical Analysis

What is Technical Analysis?

Technical Analysis (TA) is a method for studying market behavior and predicting price direction. It focuses on three key elements: price, volume, and time. By using charts and statistical tools, TA reveals market trends and investor sentiment.

Unlike fundamental analysis, technical analysis does not focus on whitepapers, economic indicators, or project fundamentals; it focuses solely on price. After all, in any market, price is the ultimate reflection of all information.

Core Logic

1. Market behavior reflects all information: News, policies, and institutional trades ultimately show up in price movements.
2. Price moves in trends: Markets are not purely random; prices often continue moving in the same direction.
3. History tends to repeat itself: Human nature doesn’t change, so cycles of fear and greed recur on charts.

Therefore, the goal of technical analysis is not to predict the future with certainty, but to gain a probabilistic edge. Traders identify trends and turning points from charts to make more rational decisions.

Three Core Assumptions of Technical Analysis

Every successful technical analysis framework is built upon three fundamental assumptions. Understanding them is essential for mastering trend and cycle analysis.

1. The Market Discounts Everything

Price already reflects all known information, including news, expectations, policies, emotions, and even rumors. This assumption is especially true in the cryptocurrency market, where information spreads rapidly and trading is highly decentralized. Whether it’s a project update, regulatory announcement, or whale movement, everything is quickly reflected in the price.

To this end, a price chart represents the collective psychology of the market. When you learn to read charts, you are essentially learning to read market sentiment. Rather than trying to predict the news, it’s often more effective to focus on price action itself. The goal of technical analysis is not to explain why the price moves, but to identify how it is moving.

2. Prices Move in Trends

Prices do not fluctuate randomly; they tend to move in trends. Once a trend is established, it usually continues until an external force disrupts the balance.

For example, during a BTC bull cycle, each pullback often represents a consolidation before the next leg up. Understanding the persistence of trends helps traders avoid premature countertrend trades. In other words, trend following is the foundation of long-term survival in the market. Trying to short during an uptrend or bottom-fish during a downtrend is essentially fighting against market momentum. As the classic saying goes: “The trend is your friend, until it ends.”

3. History Repeats Itself

Price action reflects human nature, and human nature never changes. Greed and fear, euphoria and panic—these emotional cycles repeat throughout history. As a result, chart patterns, market cycles, and support/resistance dynamics tend to recur over time. That’s why technical analysis holds predictive value—not because charts are magical, but because human behavior is consistent.

For instance, classic reversal patterns like the “double top” or “head and shoulders” reflect a psychological shift from bullish exhaustion to bearish control. When you recognize these formations, what you’re really seeing is the collective behavior of the market repeating itself.

The Structure of Market Cycles

Market movements are not linear but cyclical. Every trend follows a recurring process of accumulation, expansion, correction, and rebalancing.

There are usually four phases in a crypto market cycle:

1. Accumulation Phase: Prices remain subdued, and sentiment is pessimistic. Smart Money quietly builds positions. Volume is low, volatility declines, and downward momentum fades.
2. Expansion Phase: Once price breaks key resistance, the primary trend is established. Institutional and retail participation increases, pushing prices sharply higher. This stage is often driven by new narratives, innovations, or hype cycles.
3. Distribution Phase: Major players start making profits, and price consolidates at elevated levels. News remains positive, but volume divergence emerges, a sign that internal market structure is weakening.
4. Decline Phase: Panic spreads, and prices fall rapidly. Retail traders exit in fear until volatility contracts again and the market enters a new accumulation zone.

This pattern has been repeated throughout Bitcoin’s history—from 2013 to 2017 to 2021—proving that while technology evolves, human nature and market cycles remain the same.

Combining Trend and Cycle Analysis

Understanding both the direction of the trend and the stage of the market cycle is key to identifying where the market currently stands.

In simple terms:

• Trend tells you where the market is heading now.
• Cycle tells you which phase the market is in.

A typical approach:

• When the market is in the early accumulation phase and the trend starts to strengthen, it’s a buying (position-building) period.
• During the expansion phase, continue to hold and follow the trend.
• When distribution signals appear, scale out and take profits gradually.
• In the decline phase, focus on risk management and wait for a new trend to form.

By combining trend and cycle analysis, traders can build a top-down analytical framework, from macro structure to micro execution.

Whether in short-term or medium- to long-term trading, every decision should be grounded in this integrated perspective.

Mindset Shift for Traders

Beginners often focus on the result of price movements, while experienced traders pay attention to the process behind them. This shift means you stop asking “Why is the price rising?” and start asking: “Which stage of the trend are we in?” “What are market participants doing right now?” “Is the current direction supported by capital flow?”

Learning about trends and cycles is essentially about finding a probabilistic edge in seemingly random fluctuations. This is the hallmark of professional traders—they don’t aim to be right every time, but to achieve positive expectations in the long run.

Practical Tips

1. Multi-timeframe analysis: Observe daily, 4-hour, and 1-hour charts to understand how trends interact across different timeframes. For instance, when the daily trend is bullish but the hourly chart shows a pullback, that retracement could present a potential buying opportunity.
2. Confirm trends with moving averages and volume: In an uptrend, prices usually trade above moving averages (MA) with rising volume. When volume contracts, it often signals weakening momentum or a possible reversal.
3. Combine sentiment and on-chain data indicators: Tools like the Fear & Greed Index, Funding Rate, and Active Addresses can help identify where the market stands within a broader cycle.
4. Keep a regular review habit: Record key market structures and capital flow of major assets each week, and summarize your observations in short notes to track market phases.

Summary

Trend represents the market’s language, cycle represents the rhythm of time, and the core assumptions form the logic that connects them. Once you master the interplay between trend and cycle, you’ll stay calm amid volatility. You’ll no longer chase price swings blindly, but make rational decisions based on market structure—marking the true shift from a speculator to a professional trader.