What is Technical Analysis?
Technical Analysis can be explained as an art and science of
predicting future prices based on an
Analysis of the past price variations.
It is based on an analysis of current demand-supply of
commodities, stocks, indices, futures or any tradable instrument.
The technical analysis involves putting stock information
such as prices, volumes on a chart and then applying various patterns and
indicators to it in order to appraise the future price movements. The time
frame in which technical analysis is applied may range from
Intraday (1-minute, 5-minutes, 10-minutes, 15-minutes,
30-minutes or hourly), daily, weekly or monthly price data to many years.
There are essentially two methods of analyzing investment
opportunities in the security:
1. Fundamental analysis
2. Technical analysis.
You can use fundamental information like financial and
non-financial aspects of the company or technical information which ignores
Fundamentals and focuses on actual price movements.
The basis of Technical Analysis:
What makes Technical Analysis an effective tool to analyses
price behavior is explained by
Following theories given by Charles Dow:
* Price discounts everything
* Price movements are not totally random
1. Price discounts everything:
Technical analysts believe that the current price fully
reflects all the possible material affect the price.
Technical analysis looks at the price and what it has done
in the past and assumes it will perform similarly in the future under similar
circumstances.
Technical analysis looks at the price and assumes that it
will perform in the same way as done in the past under similar circumstances in
the future.
2. Price movements are not totally random:
Technical analysis is a trend following system. Most technicians
acknowledge that hundreds of years of price charts have taught us one simple
fact – prices trend. If prices were always 'noisy', it will be well-nigh
impossible to earn a good return through technical analysis. A technician
believes that he can identify a trend, invest or trade in the direction of the
trend and reap a profit as the trend unfolds. Because technical analysis can be
applied to many Both short-term and long-term trends can be observed in various
time frames.
