What is Technical Analysis?

What is Technical Analysis?

Technical Analysis is basically the study of Price Chart, undertaken to get an idea about future price action of any traded stock. A Price Chart plots the quotes of a stock traded on a stock market. All past\present\future news relating to a stock, together with investors' opinion about it, determine the price of the stock on the trading floor. The "Price" discounts everything. Therefore, study of anything else is unnecessary. Technical Anlysis comprise of various techniques to study such price action over a period, as shown in the price chart.


How is it Different from Fundamental Analysis ?
Fundamentalists study the cause, while technicians study the effect. "Price" is the final result of all forces that can affect a stock. Price even discount the future, unknown news, while Fundamentals reflect the past. It is because of this reality, we often see tops being made on good news and bottoms being made on bad news.


How Technical Analysis helps an investors and traders?
With the help of Technical Analysis, the Investors and traders can enter the stock (long or short) when it starts trending, instead of locking their money during the periods of consolidation. Traders may look for such trending moves in Daily (or shorter) charts, while the investors may look for such trending moves in weekly/monthly charts.


Types of Charts
Price Style

Charts are displayed in three styles -- Bar,line and candlestick.




Candlestick

A candlestick is black if the closing price is lower than the opening price. A candlestick is white if the closing price is higher than the opening price.





Line

A line chart simply connects the closing prices from one period to the next. This type of chart is ideal for securities with no high or low price data (i.e., mutual funds).


Happy Investing