Technical Analysis is widely used in Trading Because You can not analyze Stocks or Index without the help of this Analysis, So In This Post, We will learn What is Technical Analysis and How we can use it in Trading to find a better trading opportunity. So Let’s Begin….
What is Technical Analysis in Stock Market?
It’s a concept that can be used to analyze the price movements of financial instruments to identify profit opportunities.
The benefits of this analysis are often discussed but it’s also important to see the criticism of this idea now to know all the implications.
Prices on the financial markets move, among other things, because many people and institutions interact on the international financial markets every day. Financial market players make buying and selling decisions that influence the pricing of monetary instruments and cause upward and downward price fluctuations.
Psychology Behind Technical Analysis
Technical analysis is very effective because people always follow the same behavior and often make their trading decisions collectively supporting similar emotions. Most people will already know Emotions is very harmful while trading. But Only a few People control emotion while Trading. They bought shares based on expectations and not based on facts.
This indicates that the human psyche and general thinking patterns are a crucial part of developments in the financial markets.
Greed, fear, uncertainty, and therefore the willingness to require risks have determined human actions for millennia and, of course, how people have maneuvered their money around the world’s markets for hundreds of years. When we learn to read the customer and seller interaction from the charts, we’ll be ready to read and handle any price chart, on any market, and for all times going forward.
Another important reason why technical analysis is so effective is due to the principle of the self-fulfilling prophecy. Since many people follow the concepts of technical analysis and make decisions supported by them, they verify the very fact that technical indicators and other concepts work just because they are widespread. Even the financial media often ask about technical concepts like past highs and lows, all-time highs and lows, psychologically important price levels, and moving averages.
Assumptions of Technical Analysis
#1: The market discounts everything
Technical analysts believe that the market discounts everything. This point of view is congruent with the Efficient Markets Hypothesis (EMH) assumes an identical conclusion about prices. The only thing remaining is the analysis of price movements, which technical analysts deem the merchandise of supply and demand for a specific stock within the market.
#2: Price moves in Trends
Technical analysts believe that the market price moves in trends. But this is not fully true because most of the time market is In a sideways mode. Some technical trading strategies have supported this assumption (Price moves in trends).
#3: History tends to repeat itself
Technical analysts expect that history tends to repeat itself. The repetitive nature of price movements is usually attributed to plug psychology, which tends to be very predictable supported emotions like fear or excitement. Technical analysis uses chart patterns to research these emotions and subsequent market movements to know trends. While many sorts of technical analyses are used for quite 100 years, they’re still believed to be relevant because they illustrate patterns in price movements that often repeat themselves.
Tools of Technical Analysis
Volume charts are one of the most widely used technical analysis tools used to analyze the Stock market during a day. You can either use a bar chart or candlestick chart, Renko Chart analysis. Used in tandem with trend lines, charts facilitate this exercise to a great extent.
Indicators are mostly used by retail traders. There are many indicators of available in the stock market. Some are Legging Indicators and Leading Indicators such as Stochastic indicators, Fibonacci Series, MACD Histogram, RSI, EMA, MA, and much more.
#3 Price Action Technique
The price Action Technique is widely used in Trading. Price action means Price + Action. In the Price action Technique Traders only Focus on Price and Volume help of Support & Resistance, Trend line, and Demand & Supply Zone. etc. No Indicators Use in Price Action Trading.
Importance of Technical Analysis
Technical analysis is very important for Traders because they Find short-term opportunities in the market to make money. Technical analysis provides various tools for analyzing Market Sentiment, Current Trends, charts, Indicators, and many other things. You can not make money in the Stock market in short term without using Technical Analysis.