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Technical Analysis

What Is Technical Analysis?

Technical analysis is the key for traders or for short-term investors. Technical analysis is a tool used to identify trading opportunities in the market based upon participants' actions. The actions of the crowd can be visible with the patterns or charts formed over the years. In technical analysis, we try to analyze the psychology of the mass by interpreting price action & volume.

Technical analysts consider the following major types of indicators in general:

  1. Oscillators

  2. Moving averages

  3. Price trends

  4. Chart patterns

  5. Volume and momentum indicators

  6. Support and resistance levels

 

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Understanding Technical Analysis

The advantage of technical analysis is that you can apply it to any financial asset once you learn about it, unlike in fundamental analysis, where you cannot use the same tools for shares & commodities.

For example, you study financial statements for a share, whereas, for agricultural commodities, you consider factors like monsoon, harvest, demand, supply, etc.

Technical analysis is frequently used to produce short-term trading signals using various charting tools, but it may also be used to improve the analysis of a security's strength or weakness in relation to the larger market or one of its sectors. This data aids analysts in bettering their overall valuation estimate.

Any security with past trading data can benefit from technical analysis. Stocks, futures, commodities, fixed-income, currencies, and other securities fall under this category. Technical analysis is far more common in commodities and FX markets, where traders are more concerned with short-term price swings.

When combined with proper investing or trading criteria, technical analysis assumes that historical trading activity and price variations of security can be valuable indicators of the security's future price movements. Technical analysis is frequently used in conjunction with other types of study by professional analysts. While retail traders may make conclusions entirely based on a security's price charts and other statistics, professional stock analysts rarely limit their research to fundamental or technical analysis.

Technical analysis aims to predict the price movement of nearly any tradable instrument subject to supply and demand pressures, such as stocks, bonds, futures, and currency pairs. In fact, some people consider technical analysis to be nothing more than the study of supply and demand forces as represented in a security's market price movements. Although price fluctuations are the most typical focus of technical analysis, some analysts examine other metrics as well, such as trade volume or open interest.

Conclusion:

Technical analysis is a trading discipline that uses price trends and patterns on charts to evaluate investments and uncover trading opportunities. Past trading activity and price variations of an asset, according to technical analysts, might be useful predictors of future price movements. Fundamental analysis, on the other hand, is concerned with a company's financials rather than historical price patterns or stock movements.

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