Introduction to Technical analysis
Technical analysis is study of past chart patterns to predict the future prices of the stock.
It is statistical and graphical study of stock charts, volumes and trend. Traders use it to predict future direction and trend of a stock , whether buy or sell a stock. Technical analysis is a standard practice of finding trading opportunities by analyzing momentum in stocks. Technical analysis is a tool or system to future movement of not only stocks but also currency , derivatives and commodities.
Basic terms related to Technical Analysis
- Support : While trading support is a very important level to buy any stock . Support is a level where buying pressure in stock is greater than selling pressure.
- Resistance : Resistance is great place to sell a stock . It is a higher level compared to current market price. this is a level at which selling pressure is greater than buying.
- Volume : Volume is a most important thing in stock market . It denotes number of buying and selling in stock during particular timeframe.
Advantages of Technical Analysis
- Technical analysis is good term to make our trading decisions sound.
- Buying using it you can take better decisions ,
- Another advantage of technical analysis is you can decide for how much time you are buying a stock.
- In fundamental analysis you have to study balance sheets , results ,news which takes lot of time.
As we know history repeats itself ,so we can backtest our strategies using various softwares that are available in market.
Best indicators in Technical Analysis
- Moving averages
- Relative Strength Index (RSI)
- Bollinger Bands.
- Candlestick Patterns
- Chart Patterns
Limitations of technical analysis
History repeats itself but not every time . It is not necessary that your analysis is always right . Many times your analysis might be correct but market moves completely opposite direction.