Share market complete guide: What is technical analysis and why is it important in trading and investing ? – Explained

technicaal analysis of  stock


  • Technical Analysis is the examination of past price movements to forecast future price movements.

Technical analysis is a method used to evaluate and predict future price movements of financial assets, such as stocks, currencies, and commodities. It relies on the analysis of historical price charts and trading volumes to identify patterns, trends, and potential market reversals.

One fundamental principle of technical analysis is the efficient market hypothesis, which posits that all relevant information is already reflected in an asset’s price. Therefore, technicians believe that past price movements can provide insights into future price movements. Chart patterns, like head and shoulders or double tops, and technical indicators, such as moving averages and relative strength index (RSI), are commonly used tools in this approach.

Support and resistance levels are crucial elements in technical analysis. Support is a price level where a security often stops falling, while resistance is a level where it frequently halts its ascent. Traders use these levels to make decisions on entry and exit points.

Despite its widespread use, technical analysis has both proponents and skeptics. Critics argue that it lacks a theoretical basis and may rely too heavily on historical data. However, many traders find value in combining technical analysis with other forms of analysis, such as fundamental analysis, to make more informed decisions.

In the fast-paced world of financial markets, technical analysis serves as a valuable tool for traders and investors seeking to navigate the complexities of price movements and gain a competitive edge in decision-making.

Technical Analysts are sometimes referred to as chartists because they rely almost exclusively on charts for their analysis.

Technical analysis is applicable to stocks, indices, commodities, futures, currencies or any tradable instrument where the price is influenced by the forces of supply and demand. Price refers to any combination of the open, high, low or close for a given security over a specific time frame. The time frame can be based on intraday, daily, weekly or monthly price data and last a few hours or many years. In addition, some technical analysts include volume or open interest figures with their study of price action.

 * Basic Tools of Technical Analysis

  • Price Charts
  • Trend Lines
  • Moving Averages
  • Fibonacci Retracement
  • Fibonacci Time Zones
  • Regression Channels
  • Bollinger Bands

 * Technical Analysis Indicators

  • RSI – Relative Strength Index
  • MACD – Moving Average Convergence / Divergence
  • ROC – Rate Of Change
  • CCI – Commodity Channel Index
  • OBV – On Balance Volume
  • MFI – Money Flow Index
  • RS – Relative Strength
  • TRIX – TRI-ple eXponential
  • Accumulation/Distribution
  • Chaikin
  • Ultimate Oscillator
  • Stochastic
  • TRIN (Arms Index)
  • AD-Line (Advance/Decline Line)
  • NVI – Negative Volume Index

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