Updated: Mar 2
In the world of investing charting plays very important role , many times its said that trend is your friend but how will you know who is your real friend ? To know you must know how to analyze correctly. This blog talks about it ..
Technical analysis is a method of evaluating securities such as stocks, bonds, and commodities by analyzing statistical trends and charts of their historical price and volume data. The purpose of technical analysis is to identify patterns, trends, and signals that may help traders and investors make informed decisions about buying, selling, or holding a particular security.
Technical analysts use various tools and techniques to analyze price trends, such as moving averages, chart patterns, support and resistance levels, and technical indicators like relative strength index (RSI) and moving average convergence divergence (MACD). These techniques are based on the idea that market trends, patterns, and behaviors tend to repeat themselves over time, and that analyzing historical price data can help predict future price movements.
Technical analysis is often used in combination with fundamental analysis, which involves analyzing a company's financial and economic data, as well as external factors such as market trends and geopolitical events, to evaluate its overall value and potential for growth. By combining these two methods of analysis, traders and investors can gain a more comprehensive understanding of a security's potential risks and rewards.
parameters in technical analysis
There are several key parameters in technical analysis that traders and investors use to analyze securities. Some of the most common ones include:
Price: The current market price of a security is the most basic parameter in technical analysis. Traders use charts and other tools to track the movement of prices over time and identify trends, support and resistance levels, and other patterns.
Volume: Volume refers to the number of shares or contracts traded in a particular security over a given period of time. Technical analysts use volume data to confirm price trends and identify potential reversals.
Moving averages: Moving averages are calculated by averaging a security's price over a certain number of time periods (e.g., 50-day or 200-day moving average). Traders use moving averages to identify trends and potential entry and exit points.
Support and resistance levels: Support levels are price levels at which demand for a security is strong enough to prevent it from falling further, while resistance levels are price levels at which supply is strong enough to prevent it from rising further. Technical analysts use these levels to identify potential buying or selling opportunities.
Technical indicators: Technical indicators are mathematical calculations based on price and/or volume data that help traders identify trends and potential reversals. Examples of technical indicators include relative strength index (RSI), moving average convergence divergence (MACD), and stochastic oscillator.
Chart patterns: Chart patterns are formations that appear on price charts, such as head and shoulders, triangles, and flags. Traders use these patterns to identify potential trend reversals or continuations.
By analyzing these and other key parameters in technical analysis, traders and investors can gain insights into a security's potential risks and rewards and make informed decisions about buying, selling, or holding it.
steps to begin technical analysis -
Here are the general steps to begin technical analysis:
Identify a security to analyze: The first step in technical analysis is to identify a security that you want to analyze. This can be a stock, bond, commodity, or any other tradable instrument.
Gather historical price and volume data: Once you have identified a security, you need to gather historical price and volume data. This data can be obtained from a variety of sources, including financial news websites, charting platforms, and data providers.
Choose a charting platform: You will need a charting platform to display and analyze the historical price and volume data. There are many charting platforms available, both free and paid, so choose one that suits your needs and budget.
Select a time frame and chart type: Next, you need to select a time frame and chart type to display the historical price data. Common time frames include daily, weekly, and monthly, while common chart types include line charts, bar charts, and candlestick charts.
Add technical indicators and overlays: Technical indicators and overlays are tools that can help you analyze price trends and patterns. Common indicators include moving averages, MACD, and RSI, while common overlays include trendlines and support and resistance levels.
Analyze the charts and indicators: Once you have set up your charts and added your indicators and overlays, it's time to analyze the data. Look for patterns, trends, and signals that may help you make informed decisions about buying, selling, or holding the security.
Monitor and adjust your analysis: Technical analysis is an ongoing process, and you need to monitor and adjust your analysis as new data becomes available. Keep an eye on market trends and news events that may affect the security, and be prepared to adjust your analysis accordingly.
These are the general steps to begin technical analysis. Remember that technical analysis is just one tool in a trader's toolbox, and it should be used in conjunction with other forms of analysis, such as fundamental analysis and market news and trends.
free charting website for technical analysis There are many free charting websites available for technical analysis. Here are a few popular ones:
TradingView: TradingView is a popular charting platform that offers a wide range of tools and features for technical analysis, including charting, indicators, drawing tools, and social networking. TradingView offers both free and paid subscription plans.
Yahoo Finance: Yahoo Finance offers free charting tools for stocks, ETFs, and currencies. It provides a range of charting options, including line, bar, and candlestick charts, as well as technical indicators such as moving averages, MACD, and RSI.
StockCharts: StockCharts is a comprehensive charting platform that offers both free and paid subscription plans. It provides a wide range of charting tools, including indicators, overlays, and annotation tools.
Investing.com: Investing.com offers free charting tools for stocks, forex, commodities, and cryptocurrencies. It provides a range of chart types, including line, bar, and candlestick charts, as well as a variety of technical indicators.
ChartMill: ChartMill offers free technical analysis tools for stocks and ETFs. It provides a range of charting options, including trendlines, moving averages, and technical indicators.
These are just a few examples of the many free charting websites available for technical analysis. It's important to do your own research and choose a platform that meets your specific needs and preferences.
TOP Books on technical analysis which one can use to upgrade their knowledge and build sound base before starting the actual implementation of the learnings.
Disclaimer - The books suggested above may offer us a referral rewards but our intention is to help you in learning more about the topic discussed above .