🙏 Namaste 🙏
In my previous post i discussed that there are two types of analysis in the stock market, the first one is fundamental and second is technical analysis. I've already discussed about fundamental analysis so today let's unfold about technical analysis. Technical analysis is used by a great number of experts. May be at first it sounds extremely complicated but once you know that you can easily understand how to do technical analysis of the stock and you can pick your stock accordingly. Even I'm not so good in this but I'll try to explain 😅
So first let's hit the basics:
what is Technical analysis?
Technical analysis is a process of predicting the future price movement of a financial instrument based on its past price movements and patterns. One of the main tools used in technical analysis is charting, which involves studying the historical price and volume movements of a stock .
This analysis can be performed for varied time frames, be it for a few minutes, daily, weekly, monthly or yearly. Technical analysta use several indicators which are statistical tools, which help them to make reliable prediction and profitable trands.
Diffrence between technical analysis and fundamental analysis:
Technical analysis involves the study of past price movement to predict the future price movement of a stock.
Where fundamental analysis involves the study of the company's past financial performance and other external factors .Technical analysis aiming earning profit in shorter duration. Best for intraday trading.
While fundamental analysis aiming wealth creation in long period. And best for investing purpose.
I think both are important for a investor so that they can take better entry and exit decisions.
Some assumptions of Teachical analysis:
price moves in trends:
Technical analyst assume that the stock price does not move randomly, rather it moves in a trend. A stock price can move in 3 types of trends - uptrend, downtrend or sideways trend. Once a trend is established the stock price will follow it until a new trend is established.
History repeats itself:
One of the important assumptions of the technical analysis is that History repeats itself. This is because price tends to move in trends and market psychology reacts to it in a similar fashion. Hence, technical analysts study past price movements to predict future price movements.
Market price reflect all the information about a stock:
Technical analyst believe that all the investors are aware of everything there is to know about a stock. They actually use this information when making buying or selling decisions.
This information subsequent gets reflected in the stock's price and ultimately the stock chart. This is why they only study chart patterns to gauge market trends.
Market discount everything:
Technical analyst assumed that all the fundamental factors , economic factors, and market forces that can affect a stock's price has already been discounted from the current market price of that stock. Hence, technical analysis focus on the price movement of the stock.
The trade summary
The Indian stock market is open from 9:15 AM to 15:30 PM. During the 6 hour 15 minute market session, there are millions of trades that take place. Think about an individual stock, every minute there is a trade that gets executed on the exchange. Without any chart it is impossible to read the trand.
By tracking the open, high, low, close we can draw a summary of the price action.
The open -
when the markets open for trading, the first price at which a trade executed is called the opening price.
The high -
This represents the highest price at which the market participants were willing to transact for the given day .
The low-
This represents the lowest level at which the market participants were willing to transact for the given day.
The close -
The close price is the most important price because it is the final price at which the market closed for a particular period of the time. The close serves as an indicator for the intraday strength. If the close is higher than the open, then it considered a positive day . The closing price also shows the market sentiment and serves as a reference point for the next day's trading. For these reasons closing price is more important than the open, high and low.
The open, high, low and close prices are the main data points from the technical analysis perspective. Each of these prices have to be plotted on the chart and analyzd.
Types of charts:
1)Line charts
2)Bar charts
3)Candlestick charts
The details of the charts will share in my next post. may be it seems complicated but its very important to pick a right and profitable stock. Hope this information is helpful for you.
🙏Thanks for your time and support 🙏