Sunday, June 28, 2020

Technical Analysis- What Is that?

In real life sometimes 'words' are misleading. One such word is here- 'Technical Analysis'.

I feel there is nothing 'Technical' about 'Technical Analysis'. When you read the word Technical Analysis you feel there is something which involves great Engineering or Science or a Complicated Algorithm.

Here is good news. There is nothing complicated in Technical Analysis. 
Actually, it (Technical Analysis) is a study of Market Emotions with the help of Price Action of Stock and Volumes traded (quantity bought and sold). I feel it should be renamed to Emotion's Analysis.

But we shall go by the name Technical Analysis in this article... keeping aside what I feel.

So Technical Analysis is the study of Price and Volumes of stocks or Index or Future or Options or anything that is tradable. Price is plotted on a chart either in the form of a line or candlesticks or bars (more on candlesticks and bars later). This price chart gives us the price movement of stock since it is listed on the stock exchange.

Technical Analysis works or believes in the following principles:

  • Stocks move in trends - Uptrend, Downtrend, and Sideways (Neutral) Trend.
  • The trend continues until its important Support or Resistance is not broken (More on Support and Resistance later).
  • Volumes are important to confirm the trend.
  • Earlier Price movements (patterns) are repeated in the future.
  • Emotions, News can be seen on charts with the help of price movement and volumes.

Technical Analysis is like a Compass that shows direction when you are lost in the jungle. Charts in Technical Analysis helps in identifying where the stock is currently trading as compared to its High Price and Low price.

Support and Resistance on the chart help in making Buying and Selling decisions with less risk and high-profit potential.

Later, any other tools are known as Indicators, Oscillators, and Moving Average are developed. These tools support decisions taken based on Price and Volume.

Technical Analysis can be applied to any stock, Index or any market such as Commodity or Currency.

There is a growing population which is using Technical Analysis to trade the markets.

We have designed a course in the Stock Market and Technical Analysis for those who are starting new in stock markets. I coach my students on all aspects of Technical Analysis and how to trade markets using Technical Analysis.

 Disclaimer: The contents produced here are purely for educational purposes. They should not be construed as buy/sell recommendations. I am not a SEBI registered Analyst or Investment Advisor. Readers are advised to consult their Investment advisor before taking any decisions based on the above write-up.