Technical analysis has taken over the market and overshadowed all the way to study the market without being fundamental. The essence of technical analysis is that it tries to capture the psychology and sentiment of the market by analyzing price trends and chart patterns for possible trading opportunities. This is only a part of the market component, which provides for others, cluster analysis.
telegram channel, I talk a lot about the mechanics of the market and share my ideas, but here I want to pay attention to several types of analysis.
Cluster analysis is based on logical methods of combining trade transactions according to specific criteria (volume for buying/selling, time interval, price level). Cluster analysis in trading allows you to get information about traded volumes and find large trades necessary for price movement.
The cluster volume method is based on special software that collects data from exchanges and broadcasts it on a cluster chart. Thus, you can track when large capitals enter and leave assets and, as a result, understand the trend of liquidity movement.
Also, cluster analysis includes an indicator called “Delta” – the difference between the past transactions to buy (bid) and sell (Ask) an asset. In other words, the imbalance in the market in the considered period, showing the superiority of the seller or the buyer in the market.
When working with such indicators, you can determine the beginning of a trend movement and its direction, track the activity of market participants, identify the levels of limit orders and their volumes, and find a competent entry point. Is this information useful given that it is a volume that drives the price? I think the answer is obvious.
Cluster analysis allows you to assess the state of a market or an individual asset within both one hour and within a long-term period.
Let’s relate technical and cluster analyzes to each other using a specific situation as an example.
Imagine you are trading and do not notice all the internal processes on the chart but only see the movement of quotes. Drawing lines from one point to another, you will not know if a large volume is coming out of the asset at this moment, and as a result, the dominant side that dictates the movement may change. How does this predict a fictitious line that has nothing to do with the current situation from point to point?
There can be a lot of such examples because the market does not work according to drawn lines but according to the movement of liquidity (money).
No one can guess the future in the Marker; in the long run, these are only probabilities. Working with probabilities according to figures sounds somehow utopian and frivolous. Outdated analysis, relevant in the middle of the 20th century, when there were no computers or terminals for trading
Why did I mention several types of analysis about each other? Here, two fundamentally different types of analysis meet each other – one that involves considering factors influencing the market, and the second, starting from graphic lines and history.
This is my opinion regarding these types of analysis; it may differ from others, of course. But, I think, spending time on familiarization and study of the cluster method, your opportunities in the analysis of this area will increase.