As a beginner when we start with stock market we tend to come across terms like Technical and fundamentals, but to understand like what is basic technical analysis or fundamental is difficult for beginner.
So this article will help you to understand gist of technical analysis and how to start with it. After reading this you will be ready to dive deeper into technical analysis. These analysis will be helpful for both short-term investors and long-term investors. This article will provide insight about how stock market enthusiast should think technically when they study any stock.
What type of analysis do traders use?”
Generally Trader tend to do more of Technical analysis as it provides current direction of the stock or indices trader is looking for. A Investor look for fundamental analysis of stock so that they can keep it for longer run.
What is basic technical analysis?
Technical Analysis means it showing the past price movement in a stock and trying to forecast its future. Did you get it.? No. Ok. Will help you.
Technical analysis is done to check how currently stock is performing based on recent data. And this is purely to identify trend and current status.
What are the methods of technical analysis trading?
Technical analysis is done by identifying trends in the market by opening chart and plotting support and resistance, candlesticks pattern, price action and strategies.
How do traders do technical analysis? and use of it?
- Trader will always perform technical analysis to check for current trend.
- Its needed because by checking fundamentals you wont be able to understand what is current status, to see how stock is performing right now, is it on strong trend, or weak trend,
- where are support and resistant areas are. So when you get to know this, you will be able to decide about your decision on that stock. Ultimately it provides clarity in your mind about current status of stock.
Let me explain with Technical analysis with an example.
Prerequisite : We should know how to identify support and resistance , Draw Trend line , Chart pattern, identify candlestick.
Steps to follow:
Trader who wants to perform technical analysis of any stock should perform below steps and perform the analysis.
a) Open any application which provide chart of that stock to be accessed.
b) Timeframe of the chart.( Like Weekly, Daily, Monthly, or even shorter Timeframe like 5m, 10m etc).Depending on which trade we are interested. Generally day trader, intraday need to check for shorter timeframe, where as swing or positional trader tend to add larger Timeframe of Weekly or monthly.
c) Try to identify support and resistance. Draw trendline. Support for a stock means this is the place from which stock has reversed and below which it is predicted not to go. where as Resistance is the place where stock has come down by not having strength break that level)
d) Identify any candlestick formation that are happening. Ex: If there is any downward candlestick like shooting star or bearish engulfing is forming at the top, then it suggest down trend. same way its other way depend on what type of candles are forming at what levels.
This helps to identify strength of the stock. Are there any buy interest or sell interest.
These are basic methods which we can do Technical Analysis of stock. Along with this, we can also include volume and other indicator like RSI,EMA etc which will be icing on the cake.
Check Video Here.
Can technical analysis make money?”
Definitely yes. We believe in the principle of learning first and then remove L from it. Whatever is it profit or a loss you are responsible for that so my suggestion is learn before taking any trades. once you learn and start practicing, things will fall in to place and you will be profitable.
Meaning of Fundamental Analysis
Fundamental Analysis means here we are investing our money in the long- term so, we check profit and loss of company, Balance sheet of a company, quarterly result of a company. It is like a medical report, which helps to know the health of a sick person. Kindly check our article Identifying fundamental strong stock for more information. Read More…
Difference between Technical and Fundamental Analysis
- Technical Analysis is mainly focusing on the charts, candlestick pattern, price trend and volume and Fundamental Analysis is mainly focusing on the company’s financial statements like Balance Sheet. Profit and Loss, Cash Flow Statement, Industry Trends and Economic Conditions etc.
- Technical Analysis is Mainly helpful for the short-term investors and Fundamental Analysis is mainly helpful for the Long-term investors.
- Technical Analysis is only creating short-term profits or loss.
- Technical Analysis is High Risk and Fundamental Analysis is low risk.
In Technical Analysis news and events can affect the fluctuations in the market. In Fundamentals News and events does not affect on the fluctuations in the market.
We can use Trading view website for charts , Screener and stock Edge website to check company profile and fundaments
Trends in price movement
Mainly there are 3 trends in the market that is uptrend, downtrend and sideways. These trends are showing the movements in the stocks.
In Uptrend Demand should be greater than the Supply, prices of the stock is going higher and we are in the Bull Trend.
In Downtrend Supply exceeds than the Demand, Here the prices of the stock is coming down and in Sideways Supply and Demand should be equal or in balance there is no movement in the prices of the stock.
What is meant by bear and bull market?
The Bull and Bear means the term used in the Stock Market it shows the price movement in the stock whether the prices are increasing or decreasing.
Bull market is where most of the companies stock will be moving up words without reason or with minimal logic.
Most of the people will lose their money in the bear market until you know hedging. Technical Analysis in a simple way: Beginner guide will let you know how to identify this trend.
Tools for Technical Analysis
1.Candlesticks patterns
Let me tell you interesting story about this. This Candlestick was used by Japanese rice traders in order to keep track of their rice prices at the market, this is a style of financial chart used to describe price movements of instrument. This is invented by Munehisa Homma a Japanese rice trader. By using this they were able to identify fluctuations in the price. So then this got introduced in US and then become popular.
There are various candlestick patterns are there in Stock Market. By combining more than two candles we can predict the price movement whether the price is going in the uptrend or down trend. In Technical Analysis one can use this candlestick patterns and predict the future price fluctuation. Candlestick will display High, Low, Open and Closing price. Some of the candles are Hammer, Shooting star, Bullish Engulfing Bearish Engulfing, Doji etc.
2.Chart Patterns
A Chart Pattern is a pattern within the chart when prices are graphed. It represents factors like buying and selling and there is a fight between bulls and bears. Here which person wins the investor will take the position accordingly. Chart pattern can be useful for both short-term investors and long- term investors. Chart patterns show the future price movement in a stock. In reversal patterns there are many patterns some are Head and shoulder, Rising Wedge, Falling Wedge, Double Bottom, Double Top ‘w’ pattern etc.
Ex of W patterns.
3.Technical Indicators
Technical Analysis done with the help of Technical Indicators. With the help of this one can identify the trend, momentum and volatility, volume etc., This Technical Indicators will provide the buy or sell signals. Some of the popular indicators are Relative Strength Index (RSI), Stochastic Oscillator, Bollinger Bands etc., Especially we are using RSI and Moving Averages.
Moving Averages
Moving averages are lagging indicators here lagging means these indicators are following the trend or price action. This is also helpful for the Technical Analyst the price of a stock is moves above the moving average you can Buy that stock. Whenever that stock is making new higher and higher than you will get the profit, in the same way when prices coming below the moving average then you can exit from the trade.
Types of moving averages
a) Exponential Moving Average (EMA)
It is the one type of moving average his will give more weight to the recent prices. It confirms the trend in the market either it is bullish or bearish. It acts as a Support and Resistance near its moving average line. You can use this average on Daily, Weekly, Hourly, Yearly basis. This indicator will give the past price movement cannot predict the changes in the future price but it only gives the prediction about the future price changes.
b) Simple Moving Average (SMA)
Simple Moving Average calculate the average price of an asset, usually using closing prices, during a specified period of days.
In both EMA And SMA when you are using this indicator on Trading view chart it forms a line near the candles it is changing as the average value changes. It is basically showing the trend in the market either it is bullish or bearish.
Relative Strength Index (RSI)
Relative Strength Index is used for checking momentum and it shows buy and sell signals.
It ranges between 0 and100, its important levels are 30,50 and 70.
Here RSI 30 means prices are in the below level and RSI 70 means prices are in the above level. If the RSI is above 50 means that stock is in a bullish trend and vice versa.
Volume
Volume is the important indicators in Technical Analysis it measures the relative significance of market moves.
If we get big green volume in a day which means buyers strength is more in that day.
If we get big red volume in a day which means sellers strength is more in that day. By this volume indicator also you can make the entry and exit point.
Conclusion
Do not get overwhelmed by this. Just read again and get the gist of it. When you start reading chart and also about these tools you get more information and interest. Just hold on to it.
Without knowledge if you would have invested in the stocks then you’ll lose all your money, on the other side with proper knowledge you can make money in Stock Market. So keep hustling and In the stock market when you learn then only you are able to Earn.