Technical Analysis 

Technical analysis is a popular technique which helps us in evaluating investments and to identify trading opportunities in price trends and patterns seen on charts keeping in mind the entry, exit and risk perspective. It is useful to improve timing, and to trade strategies appropriate to market conditions.


 

Lot of debates happen where  Fundamental analysis and Technical analysis are compared as to which is more beneficial. But, the truth is ,each has got its own importance and it is absolutely unfair to compare them. Any smart investor or trader will educate himself on both the approaches and apply whichever suits their investment needs.

There is a misconception that technical analysis can be followed to make a quick and easy profit. But, it is not the case if a required effort is not put to learn any particular strategy. One must constantly be making such efforts in order to be consistent in this ever changing market scenario. Hence, one must know that if a particular strategy fails repeatedly, it is the trader's inefficiency that should be blamed and not technical analysis approach. 

Following things to be kept in mind if technical analysis approach to be followed:

1. Technical analysis is best for short term trades.

2. It is useful for identifying short term opportunities that can give small and consistent profits.

3. In case of extreme movement in stocks than usual, trader should focus on minimizing the losses instead of holding the trade with a expectation that market condition will be reversed and move on to find another trading opportunity which suits the market condition prevailing during that time.

Technical analysis can be applied on any asset class if the historical time series data is available. Concept of technical analysis remains same irrespective of asset under study. For example, moving average indicator is used the same way on equity, commodity or currency.

Technical analysis are based on following assumptions:

1. All known and unknown information in the public domain is reflected on the latest stock price.

2. Technical analyst will not be interested in knowing 'why' the price has changed but instead how the price has changed.

3. Trend continuation is more likely than reversal i.e best bet is to bet on continuation of trend.

4. History tends to repeat.







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