What is Technical Analysis?

Share Market

Technical analysis is a method by which we predict whether a stock’s price will go up or down in the future by looking at the past data of its chart. The process of reading stock charts in the share market is called technical analysis.

Meaning, technical analysis works on the basis of share price history or historical price data. By looking at the patterns formed on the stock chart, we know when shares should be bought and sold.

In other words, finding out the price movement of a share by analyzing charts, volume, technical indicators, price action in trading is called technical analysis. Technical analysis is needed by short term traders and not by long term investors.

Apart from this, you can know only through technical analysis when and at what level you should enter a stock and at what level you should exit it.

Why is it important to do technical analysis?
Why Technical Analysis is important in Hindi: If you do not do technical analysis of the stock then you can never become a successful trader. It is very important for every trader to learn technical analysis.

This is slightly different from fundamental analysis. While in fundamental analysis you have to do research on the company, sector and business, in technical analysis you have to focus solely on the price.

As you know that in fundamental analysis, research has to be done on different sectors in different ways, but in technical analysis, research has to be done on every stock in the same way.

Be it any stock or index like Nifty, BankNifty, technical analysis remains the same in all. This means that all chart patterns, volume, indicators, price action, support resistance etc. have to be seen in the same way.

And hence if you learn to do technical analysis then it will be useful to you all the time whether you are trading in stock market or capital market, commodity market or Forex market.

Meaning, technical analysis is done in the same way everywhere. And that is why it is very important for every trader to learn technical analysis.

What is the work of technical analysis?
By doing technical analysis, you get to know about the price behaviour, that is, how the price of a stock moves.

For this it is necessary for you to know the market trend. You see three types of trends on the chart;

First uptrend (when the market condition is upward),
Second downtrend (when the market condition is downwards)
And the third is sideways trend (when the market keeps moving up and down in the same range, it is also called consolidated market).
To avoid losses, you should never trade against the market trend. Some people do trend reversal i.e. trading against the trend, for that it is important to know all the chart patterns in detail in trading.

Technical analysis is used to find out that.

1. When will the stock price go up and when will it go down?
2. Where to take entry and where to exit,
3. What will be the target and stop loss?
4. What will be the support and resistance levels,
5. For what period should the purchased position be held?
6. Which indicator tells what?
7. What is the momentum of the share price?
8. When is the breakout and when the breakdown going to happen on the chart?
All these things are known in technical analysis but the condition is that you understand well every basic term used in technical analysis like – Volume, Momentum, Price Action, Indicator etc.

Don’t worry, we are going to tell you about all these things one by one below. After that we will know how to do technical analysis.

What is included in technical analysis?
First of all you should know which factors come under technical analysis. And what does all that mean because if you do not know the basics of technical analysis then there is no point in trading further.

To do technical analysis, you need to know many basic terms like; Trading Volume, Chart Patterns, Momentum, Candles, Historical Prices, Trendlines, Indicators etc.

Let us understand one by one –

1. Trading Volume
Volume means the number of shares i.e. how many shares have been bought and sold in the same stock in a given time, it is called trading volume.

Trading volume can be of any period whether it is 1 day, 1 hour or 1 minute. What to do, even if it is weekly volume.

Volume is used to gauge the trend momentum of a stock. This tells you whether the momentum is light or very strong, meaning it will go up slowly or go up very fast.

Suppose the buying side i.e. upward trading volume in any A stock is 1 lakh, when the upward trading volume in another stock B is 5 lakh, then stock B will go up more rapidly.

Meaning, the higher the volume of the stock, the higher will be its momentum whether it is upward (buy) or downward (sell).

Apart from this, looking at the volume it shows that.

How much liquidity is there in a stock?
How much has been traded in a stock?
The amount of stock traded in a particular period,
Apart from this, the strength of the trend is revealed.
Volume is always represented by green and red lines at the bottom of the chart.

Volume is always represented by green and red lines at the bottom of the chart. If there are more red lines then it means that there are more sellers in the market, the price can go up and if there are more green lines then it means that there are more buyers in the market, hence the possibility of the price going down is more.

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