What is Technical Analysis?

Looking at the past performance of a stock, the technical analysis estimates what its price may be in the future. So let's learn what is technical analysis.

Technical analysis is used by all Stock Market Trader. Traders who want to earn short term profits use stock market technical analysis.

Technical analysis helps us to know when to buy a stock, at which price to buy and when to sell. So today we will overview the technical analysis of stocks.

Technical analysis helps to book profits by taking entry in stock in a short time frame. Hence technical analysis is used a lot in intraday trading and swing trading.

So stay away in this article till the end and understand what is technical analysis in short.

The technical analysis determines the maximum value of a stock up to 1 year later. If a share is to be held for more than 1 year, fundamental analysis is done for it. 

The less time period for which technical analysis is done, the more accuracy we get. 

Also read: What is Stock Market?

What is Technical Analysis?  Let us understand this by a CRICKET EXAMPLE.

If you are interested in CRICKET, then you will know that, whenever a player goes to play in a MATCH, the team he is playing against or on the field, there about his previous RECORD and PERFORMANCE we talk about it.

And it is expected that, because the player plays well against that team or on that field, we expect that the player will still do some good PERFORMANCE and show the game as he has done before,

And you must have also heard about the match played in the WORLD CUP between India and Pakistan, that India has won all their matches against Pakistan.

Although this does not have to happen, no one can say 100% that RESULT will be exactly the same, as has happened many times before.

But then it is emphasized that the Result of the match will be the same as last time.

And the truth is that this has been happening right now.

And after telling you that, to date, Pakistan has not won from India in WORLD CUP, you should be asked who will win the next time when India and Pakistan will have a match between WORLD CUP?

So you too will definitely say, CRICKET is a game of uncertainty, but still more than that of India,

And now if you are asked to make a claim on this match, who will win, then surely most of you will say the same based on all the previous matches of India and PERFORMANCE - this time India will definitely win, and you will claim India.

Because the whole CONCEPT of  TECHNICAL ANALYSIS is this,  "HISTORY REPEATS ITSELF". Nifty technical analysis is also a major factor.

To do a technical analysis of any stock, many things have to be analyzed and I will tell you about some of them today.

1. Stock Trend: The direction in which a stock moves is called Stock Trend. Normally any stock moves in 3 directions.

If the stock is going upwards then it will be called an uptrend.

If the stock is falling down, it will be called a downtrend.

The stock is neither moving upwards nor downwards, trading only in a range, it will be called a side wave trend.

2. Stock Pattern: Any stock, when it moves in any direction, it makes some pattern with it and these patterns always behave the same. 

Since these stock patterns always behave the same, these patterns can be detected by identifying in which direction the stock will move next.

There are many types of stock patterns and technical chart such as:

• ABCD Pattern
• Double Bottom Pattern and Triple Bottom Pattern
• Cup And Handle Pattern
• Ascending Triangle And Descending Triangle
• Head And Shoulders Patterns etc.

3. Chart (Charts): Charts show the price of a share through a graph or picture. There are many types of charts such as Candlestick Chart, Heiken-Ashi Chart, Line Chart, Point & Figure Chart, etc.

The highest candlestick chart is used in trading. The Candlestick Chart moves forward by creating a new candle at different time frames. 

And by analyzing these candles, the market is in the uptrend or it can be identified as a downtrend. Also, when to take entry in the trade, when to exit, where to keep the stop loss, and helps the trader to book the profit.

 

4. Time Frame: Time frame refers to the price movement of a share during a given time period. It is very important to choose the right time frame according to your trading style. 

Typically charts of time frames are used in Scalping Trading (1 MINUTE), Intraday Trading (5 MINUTE), Swing Trading (1 HOUR), Positional Trading (1 Day).

5. Price Action: The movement of a stock is called price action. Whenever a stock moves in one direction, it moves with it by making a candle. 

When the trade is analyzed by analyzing that candle, it will be called trade taken on a price action basis. Price action is a trading strategy in itself. 

A lot of people who do Scalping or Intraday Trading in short time frames use only price action. He does not use any indicator except for the price action.

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6. Indicator: An indicator is a program or software that analyzes the past price and volume of a share and tells in which direction the share can move. 

There are hundreds of indicators in the market which analyze the price, movement, and volume of the stock. Indicators should be selected according to your trading strategy. 

It is generally considered correct to use 3 - 4 indicators in a trading strategy. The most popular indicators on the market are RSI, MACD, Volume, and Moving Average.

7. Trend Line: A trend line is a way in which a line is drawn before a share. Generally, any stock moves in a Trend Cycle in which it faces support and resistance at some important price level. 

Trend Line Draw is done to find the right direction and important support of the stock - resistance level.

Conclusion:- In this article, we studied what is technical analysis in basic. We covered with simple eg, types of charts, patterns, and basics of the stock market.