The financial market is volatile, i.e., ever-evolving where the joy of profit and the risk of loss go hand in hand. One needs more precise strategies or tools to come to a decision to invest in a certain stock or share, or observe from a distance. Technical Analysis is one such tool or technique that can help these investors and trading enthusiasts, have a direction to follow in the alleys of the stock market. Once you have a grasp on it, you can easily identify profitable opportunities in the market and ensure the best Return on your investments (ROI).
What is Technical Analysis?
When market data and transactions from the past, like price and volume, are studied in order to understand how the market worked during a particular point in time and draw a future course of action for that stock, that is called Technical Analysis. In layman’s terms, when you want to know the future price movements of a stock, you tend to study its past behaviour and predict the same. It focuses primarily on market activity and price action, unlike fundamental analysis which is all about evaluating a company’s intrinsic value and financial health. The whole idea behind following this trend is the hypothesis that historical price movements usually repeat themselves and such patterns can be distinguished for future trends.
What Are the Principles of Technical Analysis?
History Repeats: It is a common belief among technical analysts that the way a stock’s price moved in the past, may also go the same way in the time to come. This hypothesis is based entirely upon human behaviour patterns. But it also has to be kept in mind that relying upon this theory is not a sensible and sane decision so other measures also have to be considered. A SEBI-Registered Research Analyst can help you understand it better.
Support & Resistance Levels: These two levels are crucial when it comes to technical analysis. The support level is the price point where the buying interest among trading enthusiasts or investors is strong enough that it puts a stop to further price decline. On the other hand, the Resistance level is a price point where the pressure of selling is high enough to put a stop to an uptrend. Once the trader is able to identify these levels, he, she, or they can determine their entry and exit points in the market.
Befriend the Trend: This notion calls attention to the significance of trading while bearing prevalent trends in mind. When traders and investors keep trades and dominant trends, side by side, they eventually boost their chances of success. Quite opposite to that, there is also one thing called counter-trend trading, which is an attempt to trade against historical trend prediction. It is not just risky but also requires meticulous timing and the confidence to trade with.
Risk Management: It is essential for successful trading to do proper risk management and diversify one’s portfolio for maximum ROI, especially when dealing with technical analysis. In order to bring down the potential losses and keep the capital safe, one can diversify his, her, or their portfolio across various asset classes, making the most of risk management techniques like setting stop-loss orders and position sizing, or something similar.
What All Tools Are Used for Technical Analysis?
- Charts: being the primary tool in technical analysis, charts visually represent price data over time, where analysts can identify patterns, trends, and support & resistance levels. Some of its renowned and recognized examples include bar charts, candlestick charts, and line charts, to name a few. These charts depict the basic data for the user. We at Logical Nivesh have been striving to help you bank on these technical analysis patterns with our online courses.
- Indicators: these mathematical calculations are applied to derive additional insights, using price and volume data. Some of its prominent examples include but are not limited to Moving Averages, Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), Bollinger Bands, and more. When traders want to determine the momentum, volatility, and overbought/oversold conditions, they consider these indicators.
- Chart Patterns: formations like triangles, flags, head & shoulders, and double tops/bottoms are some of the chart patterns that help traders figure out potential trend reversals or continuations in the market. Once these traders identify these patterns, they can easily forecast future price movements without much hassle. To make the most of these patterns, you can take the assistance of a SEBI-Certified Research Analyst.
Conclusion
Our trading mentor, Ashutosh Bhardwaj at Logical Nivesh teaches nuances of Technical Analysis to trading aspirants as well as professional traders who want to get the most out of their market learnings. Get started with your trading career and register today for our online live courses.
