Do you know What is technical analysis?
In share market, if someone wants to earn by trading on equity or Future and Option, it all based upon prediction. But with prediction no one can earn, if the prediction does not have strong support or back up. Am I right?
It will be termed as gambling, if prediction does not have strong back up or source. You can't believe on 'Tukka' in English 'By chance happening'. So, prediction with analysis makes profitable with other skills which are main features of pro Trader. There are two type of analysis named as Fundamental Analysis and Technical Analysis.
- Fundamental Analysis: It is nothing but the analysis of a script (i.e. Stock or derivative) which is based on computation of Intrinsic Value. The intrinsic value of the business enterprises is estimated as the present value of the assets of these enterprises and the flow of future dividends to be paid by these enterprises to shareholders. All the estimation based on company's financials, management, economic policies etc. It is a most common method used by market participants known as investors.
- Technical Analysis: This is the advanced method of analysis which is rely on technical data. After use of various chart such as Line chart, Bar chart, Candlestick Chart, its uses is increasing rapidly. The technique helps on short term analysis. It is based upon pure price of the script. The price movement and its study which will help us to understand the future value of the script. Let's understand it briefly.
Actually we are here because we know technical analysis is more relevant to make consistent earnings.
Importance of Technical analysis:
1) Based on data:
The analysis would be appropriate if it is a product of proper data. The relevant data you can find from various sources. The Exchange provides in time data which can be access through brokers, such as Upstox, Zerodha, Fyres, Angel Broking. But there are still other platform that also provide data such as Trading View, investing.com etc.
2) Modern Approach:
The modern era we are living now is also known as Information age. How much information you have, you will get more accuracy. The benefit of modern era is the technical approach when we find the data and analyse the resources to predict the future. It is same like analysing weather forecast.
3) Prediction of price movement:
We know stock market is all about predicting future price or price movement. But stock market is like as forecasting weather. The trends identification by modern data will help on predicting the mode of movement. Which is another most important factor of Technical analysis success.
4) Optimism, Greed and Fear:
The person who don't know the deepness of river or pond, then he has a fear and emotion. Wrong information always misleads to mistake or Act of error. The proper information optimise the analysis, control emotion and helps on achieving target. Here, technical analysis performs as optimism, that reduces fear of losses and greed for market that can lead to out of market.
The Elements used for technical analysis:
a) Chart: Technical Analysis is a way of analyses the information or data, which lead us to predict the movement of share market. There are various kind of Charts, such as:
- Line Chart: Line Chart is nothing but a platform of a graphical representation of an asset's historical price action that connects a series of data points with a continuous line. This is the most Basic type of chart used for Share Market analysis.
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| Line Chart: Nifty |
- Bar Chart: This is another Charting tool where data are represented by Bar which denotes the price movement of stocks or indices. The bar is characterised through Open price, closing price, High price, low price for a define period.
Bar Chart: Nifty - Candlestick Chart: The candlestick Chart improvised by Japanese and now used by whole world. This is a revolution in Charting history. This chart platform recognise same features of Bar chart, but this is appreciated by most of the chart users, because this helps on identifying the symbols, which improve the trading knowledge. The symbols may be bullish or bearish. Such as Hammer, shooting star, hanging man etc.
Candle Chart: Nifty - Heikin ashi Chart: This is a kind of chart, where its bars recognise the trend of market or stock or script.
Heikin Ashi: Nifty
All Charts are related to price action. Where it helps on analysing the script to predict its movement.
b) Trend Lines: There are Various Trends such as Bullish Trend, Bearish Trend. To find out the trends, there are some tools used for measure direction of tool. The trendline helps to find out when to take entry and to exit.
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| Trend Line: Nifty |
c) Support & Resistance:
If you want to become successful in stock or finance market as trader, you need to understand this support and resistance. Support is nothing but situation, where price takes support before falling again and again. And Like wise Resistance is also the situation where Price resists to go up.
d) Indicators:
The next tool is all about the indicators, these are the tools used by the trader to make trade more easy. The indicators are modified in such a way, that they identify and indicate the movement. But this is Lagging. It works a little moment latter, so pro traders do not take help of the Indicator. More you use indicator it will damage the chart like below. But if you use one or two specify Indicator such as EMA, RSI etc. it can be more helpful.
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| Indicator Chart |
There are Various Chart patterns, who helps to analyse, to see the script in a new way. The prediction of a script depends upon the movement. You need to understand that Price can't move in a straight way. This is nothing but only movement of price. But this movement make a path and that path indicates Chart patterns, such as Head & Shoulder pattern, Cup & Handle pattern, triangle pattern, Double Tp, Double Bottom, Triple top, Triple Bottom pattern, falling wedge pattern etc.
We will discussed on these briefly latter.
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| Various chart Pattern |
f) Fibonacci:
I know, this tool is not necessary, and I think You may not know this. Fibonacci is a tool used for finding retracement and extension which helps in predicting the flow of market. The technique is based on certain natural theory, which predicts the growth and movement. And here it is a new way to look the market. There are some Numbers which are very essential, such as : 0.382, 0.5, 0.618, 0.786, 1.313, 1.686, 2.686 etc.
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| Use of Fibonacci Tool |
The above tools are used for better analysis. So any one can use them after getting proper knowledge and experience on the above. You should also click here, where you can gain some important tips which will help you a lot for your trading career.
Disclaimer: The article is for only education purpose, We don't promote any unwanted and biased action.
https://wiseworld21st.blogspot.com/2021/05/most-essential-tools-skills-required.html
Thanks for reading🙏
Wise World 21st🌏
If you have any doubt please let me know.