Technical Analysis
- What is the use of technical analysis?
- What is Technical Analysis Concept?
- Fundamental analysis Vs technical analysis.
- Advantages and limitations of Technical Analysis.
Concept of Technical Analysis
»What is Technical Analysis in Share Market?
People use technical analysis in different ways. Some people see this as a quick money making solution, which is possible to a great extent, but for that you should understand technical analysis very well, and keep implementing it. And some people also resort to technical analysis to make maximum money.
Technical analysis is a great tool if you want to work on your losses and make decent profits.. To understand the direction of the stock market and to confirm the deals, but for this you must keep knowledge and implementation of technical analysis properly.
Now we know about some of the advantages and limitations of technical analysis –
Advantages and limitations of Technical Analysis:
1. SHORT TERM TRADES
Technical Analysis is used to identify SHORT TERM TRADES, Technical Analysis should not be used to know about LONG TERM TRADE. Fundamental analysis is much better for LONG TERM TRADER.
However a good investor will use Fundamental Analysis for a long term trade as well as Technical Analysis for Entry and Exit in the market.
2. RETURN ON PER TRADE
Technical analysis based trades should generally not expect much profit. Rather, we should continue to take small advantages using technical analysis.
3. HOLDING PERIOD
Trades based on technical analysis can range from 1 minute to a few weeks. And technical analysis works well in a short time frame.
4. RISK
On the basis of technical analysis, it is necessary to book a loss if trades come in the event of loss, because if not, then it will be against the technology and the situation can be worse if stop loss is not imposed.
In this way, you can understand how we can take advantage of technical analysis. And with the help of technical analysis, how can we do better deals.
Multiple utility of technical analysis
Friends, today we will talk about Versity Use of Technical Analysis.
The biggest advantage of learning and understanding technical analysis is that you can use it in the study of any Asset Class. If you have Historical Time series data for that Asset Class like- Technical Analysis you can use not only in the stock market of SHARE, but also other Asset Class like Commodities, Foreign Exchange, Fixed Income, and many more places your benefits can be used accordingly.
Here Historical Time series data means that you have change in price and a regular interval data available according to the time of that asset class Like – Daily, Weekly, Monthly and Open, Close, Low, High.
In this way you can understand how beneficial it is for us to learn technical analysis. By learning a technique, you can use it in any number of places and take advantage.
That's why technical analysis is called a versatile study which makes it more interesting and fun subject.
Fundamental analysis and technical analysis
In this way, if you comprehend technical analysis with Fundamental analysis, then this is the biggest advantage of technical analysis. You can use it not only to study in the stock market, but by using SAME RULES, you can take advantage of studying other Asset Class.
In this way, if you learn the technical analysis, then you can find profit opportunity for yourself by applying the same rules not only in stock market but also in Commodity market, Forex market. technical analysis Learning is in such a way that if you learn to operate a single bike, you can operate almost every type of bike with ease.
Whereas if we talk about learning and implementing Fundamental analysis, then Fundamental analysis is different in all asset classes like – Fundamental analysis of Commidities Market and Foreign Exchange is completely different as compared to Fundamental analysis of Stock Market.
Here you have to do different studies according to different Asset Class.
Concept of Technical Analysis
There is some Technical Analysis Assumption in Stock Market which is its basis, and it becomes very important to understand these Assumptions of Technical Analysis. If we talk about what is the basis of technical analysis.
So the technical analysis is completely based on the previous price data of the stock. And today we will talk about the concept behind the same BASE i.e. Technical Analysis.
Technical analysis has nothing to do with whether the value of a stock is much or very less than its book value. That is, Stock is Overvalued or Undervalued.
Technical Analysis is completely stock that after studying the previous price data can be called further stock price. Based on the previous price data, the price of the stock will increase or decrease completely, it only expresses the probability that.
And if we talk about what Technical Analysis is based on, then we should remember that Technical Analysis Study is based on the four facts mentioned below, which we call the Assumption of Technical Analysis.
- Markets discount everything
- The 'how' is more important than 'why'
- Price moves in trend
- History tends to repeat itself
Let us further talk about these concepts i.e. Assumptions of Technical Analysis in details-
Markets discount everything
Friends, according to this concept of technical analysis, the price of a stock is affected by all those things which are related to that stock. Regardless of whether anyone knows anything or not, the stock price in the market keeps on telling many things related to that stock through the changes happening in its price.
For example, a particular person of a company comes to know about such a contract of the company, which is going to benefit the company. So to take advantage of this, he will quietly buy the company's SAHARES in large quantities. So that as soon as people come to know about that contract by news, then people will buy that share, and thus increasing the demand will increase the share price. And that man could earn profit by selling his shares at that time.
So as soon as he buys Shares in big quantity, then change will start coming immediately from this activity in the price of Shares. And in this way a Technical Analyst will recognize this fact and he can also take advantage of this opportunity.
In this way it clarifies the concept that the PRICE of SHARES says everything, it just needs to be understood.
The 'how' is more important than 'why'
According to this concept of stock market, technical analysis emphasizes on how “how” the price of stock is getting more or less, and how it can be more or less in the coming time so that by looking at the opportunities be taken advantage of.
Not to understand that "why" the price of the stock is getting more or less. And why will it be more or less in the coming time.
That's why it is said that "HOW is more important in technical analysis, not WHY".
If we talk about the above Example then here a Technical Analyst will study that how the price of stock is going up or down and thus what is the possibility of that stock going up or down in the coming time.
On the other hand he will find out that means he will not ask "why the price of the stock is increasing".
Price moves in trend
According to this concept of stock market, technical analysis is based on the fact that stock always follows Trend. And so when a Trend is formed in the market, the stock Follow that Trend.
Trend means a pattern that moves in one direction. Like either the trend will go up or the trend will go down. Or else it will keep going up and down in a price range.
There are three types of trends:
1) When the trend goes up then it is called UP trend.
2) When the trend goes down then it is called Down Trend.
3) When the trend does not go up or down much, but only in the range of a small price change, then it is called Sidways Trend.
History Tend To Repeat Itself
According to this concept of stock market, technical analysis is based on the fact that the price of stock is always repeated again and again according to a pattern and trend. Like an UpTrend followed by a Correction in PRICE and a DOWN Trend followed by a Correction or UP TREND.
The price of a stock is repeated again and again according to the TREND, because people in the market always do almost the same reaction time and time again on the price of a stock.
For example, if MARKET is in UP Trend, then everyone wants to buy more after seeing the rising price, due to which the price keeps increasing. And when suddenly DOWN Trens comes, everyone wants to sell their shares after seeing the falling price.
This is HUMAN NATURE which is repeated again and again and that is why Share Market also keeps on repeating its PRICE according to a PATTERN and TREND.
Technical Analysis Assumption is very important, on this basis the complete Technical Analysis is based.
We hope you like this article very much. Feedback is kindly invited, post a comment. Thanks For Visiting.
0 Comments
We are waiting for your comments. 💙