WHAT IS TECHNICAL ANALYSIS

WHAT IS TECHNICAL ANALYSIS:

Technical analysis is the study of Price and Volume. It uses historical price charts and market statistics. Technical analysis is based on the concept that previous market patterns help traders predict future price trajectories.

TECHNICAL ANALYSIS TOOLS:

Ø Moving Averages:

Moving averages is a dynamic trend line.

Ø  Support and Resistance Level:

Support level indicates a stock’s low level whereas resistance level indicates the stock’s price is on upward trend. Support is a buy call whereas the resistance is a sell call.

Ø  Bollinger Bands:

Bollinger bands are a combination of three line. (1) Daily Moving Average (2) Upper limit line and (3) Lower limit line. The upper limit line is a line drawn above DMA and lower limit line is drawn below DMA. These two lines tells traders that how much and in which direction the stock moved away from its moving averages.

IMPORTANCE OF TECHNICAL ANALYSIS:

Identifying the best entry and exit point in a market is a key indicator for many investors and technical analysis tools are a very popular way of doing the same.

CONS OF TECHNICAL ANALYSIS:

Market is unpredictable and there is no guarantee that Technical or Fundamental analysis will be cent percent accurate.

ASSUMPTIONS OF TECHNICAL ANALYSIS:

Ø  The market discounts everything:

Ø  Price moves in trends

Ø  History tends to repeat itself

TYPES OF CHARTS:

Line Chart:

A line chart is simple and basic. It consists of a single line that maps the movements in the closing price of the stock.

Bar Charts:

Bar charts are a bit more complicated. There are a series of vertical lines, each line indicates the opening, closing, high and low price in a single trading session.

Candlestick Charts:

Instead of using a single line, it uses a candlestick to depict the opening, closing, low and high price of a stock during the trading session.

FUNDAMENTAL ANALYSIS OR TECHNICAL ANALYSIS- WHICH ONE SHOULD YOU CHOOSE

Technical analysis starts with charts, whereas Fundamental analysis starts with a company’s financial statement. Technical analysis is a short-term trading practice, whereas Fundamental is a long-term horizon. It is true that technical analysis has some advantages over fundamental analysis when it comes to short-term trading practices, but many investors believe that using one method is harmful. Experts suggest using both of the methods. It is always better to look at both of the methods once while investing. In my view, technical analysis can be used for averaging whereas Fundamental analysis can be used for wealth creation.

HISTORY OF TECHNICAL ANALYSIS:

Technical analysis was first introduced by Charles Dow in the year the 1800s. It is one of the most important stock index. After Dow, several other analysts have contributed to the study and designed several other tools, indicators, theories, and practices. Other noticeable technical analysts are:

• Jesse Livermore: Who popularized Livermore Accumulation Cylinder.
• George Soros
• Steven Cohen
• Ray Dalio
• Legendary Trader William Delbert Gann who used astrology to famously and accurately time the tops and bottoms of market cycles.