How to Perform the Technical Analysis of Stocks?

Technical analysis is the study of subjects related to stocks and shares, which are important to understand it in its entirety and be able to predict the market through the help of the analysis. Mr. Charley Henry Dow is known as the father of technical analysis who started and organized this analysis for facilitating investment and trading.

The study on stocks includes historical data of the rise and fall of share prices and timeline, event associated with it. Then again, it also involves the study of the volume and prices of the stocks and reasons for its variations throughout recent history and the contemporary market. Moreover, past trends and behavior of the stock market also need to be studied to form a wholesome idea of the subject.

Hence cumulative research on all the aforementioned topics helps one to predict the market trend as well as the rise and fall of stock prices. It is involved in the prediction of a price in a short period. The time duration involved for technical analysis is usually one to two weeks.

The study of the history of stocks and market pattern is what makes the subject of technical analysis appealing to people who want to be brokers or investors who are interested in short term trading. This analysis helps in equity trading the most but can be used for trading or investment prediction for other asset classes also.

 Technical Analysis Fundamentals:-

  1. All the information on stocks is reflected by the market prices. The factors that can impact a stock price is already evident through the rise and fall of it. Hence the price is never unfair.
  2. Market and stock trends are followed by the fluctuation of stock prices. This observation has been done after doing research and technical analysis of stock charts and market trends. The prices follow a certain pattern which can be understood by the past history of stocks and trends. This pattern usually does not change and hence it is predictive.
  3. Repetition of patterns is a common issue that can be observed during the study of technical analysis. This is a justified assumption that rightly points out the fact that trends are repeated every time. This can be gauged by an analysis of the history in stock and prices. The study of the stock charts can only be fruitful and predictive if accompanied by observation of past patterns.

Indicators  of prediction for market trends & stock prices

  1. At times, there are very fast and sharp fluctuations in the prices of stocks in the market. Hence an average is calculated to understand the actual trend and remove the sudden sharp fluctuation before analyzing and predicting the trend. An average of a few day’s prices is calculated to bring out this fluctuation. The is called the principle of moving averages.
  2. Technical tools such as charts and volumes act as indicators of stocks and their trends. There are many types of the chart including candlestick charts, line or bar charts, and volume charts.
  3. Momentum indicators are based on prices of stocks and data of volumes This predicts the movement of the prices which act as validations after an opinion on it has been formed. Moreover together with the other indicators, it helps confirm the prices and the momentum it might take.

In Conclusion

Often investors utilize both fundamental and technical analysis while making investment decisions, as technical analysis tends to fill knowledge differences. One should bear in mind that there is no perfect technical indicator. None of them provides 100% accuracy every time.

Technical analysis would definitely increase the profitability of the market member. The appropriate choice of technical analysis is also an important part of the trading process in order to achieve the best possible success rate.

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