Hey friends, welcome to Stock's Knows. Today's topic of the article is Technical Analysis of stocks. In share market, if you want to trade or even want to find perfect price for buying or selling any shares, you need to analyze stocks. There are mainly two types of analyzing a method to analyze any security:
2) Fundamental Analysis.
Technical Analysis is mostly used by Traders. But some long-term investors also use some sort of Technical Analysis for finding perfect Entry or Exit price of any security. In this article, we will understand about Technical Analysis.
"Technical Analysis is a method to predict the direction of the price of a security by using a combination of price and volume actions and Patterns made by it."
Three basic principles of Technical Analysis:
1)Price discounts Everything:
In technical analysis, we need to assume that all the information and news of the market is discounted in the price of a security so if we only analyze price and volume of security, all the information and news for security and impacts of it on any particular security automatically analyzed. Price and volume are indicators of any news related to Share or security.
2)Price Moves in trends:
Technical Analysts believe that Price of any tradable instruments moves in trends. There are three types of trends:
Technical Analysts believe that Price of any tradable instruments moves in trends. There are three types of trends:
1)Uptrend:
If price moves in direction of Upside while making Higher highs and higher lows, this trend is known as Uptrend.
2)Downtrend:
If the price of any security or tradable instrument moves in downside while making lower highs and lower lows, this trend is known as Downtrend.
3)Consolidation:
If price nighter makes higher high and higher low nor make lower high and lower low and moves between a range of two levels, this type of trend is known as consolidation or range bound trend.
3)History Repeat itself:
Technical Analysts believe that all the patterns made by price in present will repeat in future and patterns made by price in past will also repeat in future. Hence all the patterns or combination of patterns will repeat itself in the chart of any tradable security. All the History made by price will repeat itself. Ex. In past, if the price was fallen from any specific level, in future also it will also fall from that specific level.
Using these three assumptions all the technical analysts analyze the present condition of price and volume, after that on the basis of history predict the future direction of the price of any tradable security.
The major benefit of Technical analysis is that it is applicable to any tradable security like Crude oil, Currency pairs, stocks, futures, indices in the same way.
The major benefit of Technical analysis is that it is applicable to any tradable security like Crude oil, Currency pairs, stocks, futures, indices in the same way.
Want to understand Technical Analysis with simple example Checkout my video on Technical Analysis.
In this video, I have explained what the Technical Analysis means. Maybe you don’t know but you are already a Technical Analyst.
In our life, we nearly every day analyze Price and Volume of products or things we have to buy. Isn't it strange we all are doing Technical Analysis without our knowledge?
In the video, I have taken the example of buying the tomato. Suppose one day you went to Vegetable market and bought 1 kg tomato at the price of Rs.50/kg.
Now the second day again you visited the vegetable market, as soon as you entered you found that supply of tomato as compare to yesterday is very much higher and buyers are less as compare to yesterday.
What do you think first about the price of tomato in the second day? More than Rs.50 or less than Rs.50? Less than Rs.50 right.
How do you know that? By comparing the volume of tomato of both days and price of the first day, we can predict the range of price for buying a tomato. Due to high supply and fewer buyers we found that more supply and Low demand will lead to drop in the price of anything.
You can similarly apply these basic rules to any market, in the stock market also. But in the stock market at wall street, you also find buyers and sellers of shares and analyze price, demand, and supply of shares.
But because of advances in technology, all things like buying and selling of shares become computerized now, hence we can directly not able to visualize supply and demand changes but for that, we need to study charts of price and volume of any security or share. Charts are drawn as price vs time, which shows what is the price at what time.
In the video, I have taken the example of buying the tomato. Suppose one day you went to Vegetable market and bought 1 kg tomato at the price of Rs.50/kg.
Now the second day again you visited the vegetable market, as soon as you entered you found that supply of tomato as compare to yesterday is very much higher and buyers are less as compare to yesterday.
What do you think first about the price of tomato in the second day? More than Rs.50 or less than Rs.50? Less than Rs.50 right.
How do you know that? By comparing the volume of tomato of both days and price of the first day, we can predict the range of price for buying a tomato. Due to high supply and fewer buyers we found that more supply and Low demand will lead to drop in the price of anything.
You can similarly apply these basic rules to any market, in the stock market also. But in the stock market at wall street, you also find buyers and sellers of shares and analyze price, demand, and supply of shares.
But because of advances in technology, all things like buying and selling of shares become computerized now, hence we can directly not able to visualize supply and demand changes but for that, we need to study charts of price and volume of any security or share. Charts are drawn as price vs time, which shows what is the price at what time.
There are many websites available which provide readymade charts for any listed securities or shares you need to select a time period for which you need a chart to analyze. You can select ranges from 1 minute to 1 month. If you select 1 minute then you will get a chart of every 1 minute and analyze the movement of price in every minute, if you will select 1 month then you will get a chart of everyone month and able to analyze movements of price in every month.
There was the basic info of Technical Analysis this is not enough to analyze any tradable security. There are many other things you need to learn for Technical Analysis, you will find all the articles about Technical Analysis, fundamental analysis and also get views of mine for some good companies to invest or trade for longer to the shorter term.
If you find helpful above information then Share our article and Subscribe to the newsletter of our blog.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.