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What is Technical Analysis ?


There are two primary methods used to analyze the securities and make investment decisions.

1 ) Fundamental analysis

2 ) Technical analysis

Fundamental analysis focuses on the analysis of the company's financial statements to determine the fair value of the business.




Technical analysis is an analysis of charts along with their elements such as price, volume, pattern, time, scales, etc. Technical Analysis focuses on the statistical analysis of price movements. Technical analysis may appear complicated on the surface but if you understand the benefit and the limitations of technical analysis, it can give you new sets of skills that will enable you to be a better trader or an investor over the long term. Technical analysis is mostly used to identify short-term investments from 5 minutes to few weeks, Technical analysis helps you to define other trading aspects such as Entry point, Exit point, Money management, Risk management, Emotion control.


Important elements of technical analysis :


1 ) Charts


2 ) Chart patterns


3 ) Trends


4 ) Volume


5 ) Indicators & Moving Averages



CHARTS

Candlestick Chart

Charts are the key tools used in technical analysis. For every security, the charts are analyzed to identify various types of technical analysis opportunities. Charts are simply graphical representations of a series of prices over time. However, there is a number of chart types, But the most important and commonly used chart type is the Candlestick chart.



CHART PATTERNS

Chart pattern helps to identify trading signals or signs of future price movements, The theory behind chart pattern is totally based on assumptions. The most important and basic chart patterns are Reversal and Continuation patterns. However, there are many types of chart patterns such as Head and shoulder patterns, Pole & flag patterns, Double top & Double bottom patterns, etc. Chart pattern simply helps to predict the future price movement and direction.

Reversal Chart Patterns
Continuation Patterns

TRENDS

The Trend is the most important concept in technical analysis, a trend is a general direction in which a stock price is headed, There are 3 Trends

  • Uptrend - Where the price of a security goes up

  • Downtrend - Where the price of a security goes down

  • Sideways / Horizontal Trend - Where the price of a security gets consolidated in a zone

This is how you can spot the trend on a chart of a specific security.

So the trend analysis is an important factor in Technical analysis, Following the trend can be much profitable for an investor as well as a trader.


VOLUME

There are non-price factors that are equally important including volume. Volume is simply the number of shares or contracts that are traded ( Bought & sold ) during the trading day or specified period of time, volume is used to verify the trends and the chart patterns. Heavier volume indicates heavier interest and vice versa.

It is expressed as a bar chart directly below the price chart with the bars illustrating how many shares have traded per period.





INDICATORS & MOVING AVERAGES

Various indicators are used

By looking at money flow, trends, volatility, and momentum, indicators help traders to identify the buy and the sell signals. Indicators get divided on the basis of Price, Volume, Oscillator, etc.

There are two primary types of indicators

  1. LEADING INDICATORS - Are most useful in the sideways market or non-trending market

  2. LAGGING INDICATORS - Are most useful in trending markets.


So the MOVING AVERAGES Are one of a kind of indicators, since they take an average of past price movements, they are better for accurately reading past price movements rather than predicting future past movements. However, there are types of moving averages for eg. Simple Moving Average, Exponential Moving Average. ( To learn more Go to What is moving averages? )

So the technical analysis is all about chart reading, It is a creative & dynamic process,

It is a skill that can be developed through experience and consistency. Simply, it is a statistical analysis of price movement.

So these are my views on technical analysis, these are the core elements you should study to master a technical analysis, Thank you so much for reading till here




 

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