Updated: Jul 7
When it comes to trading in the Indian stock market, technical analysis is vital tool traders use to make informed decisions. However, for many traders, technical analysis can seem like a daunting task.
This blog post will provide tips on how to learn technical analysis for the Indian stock market.
What is Technical Analysis?
Technical Analysis (TA) is a field of endeavor in finance wherein traders and investors attempt to forecast future prices and trends by analyzing past patterns in price data.
It is one of several methods investors and traders use to assess where prices may be headed in the future, with the ultimate goal of making profits from buying and selling stocks or other securities.
Below are some of the essential concepts of Technical Analysis:
Support & resistance
Different chart patterns
Charles Dow developed the concepts of different types of trends in his Wall Street Journal editorials. As per Dow, all market-related information – past, present, and even future is discounted and reflected on the charts.
As per Dow, market movements can be divided into three types, and these three types are:
Support and Resistance
Support and Resistance are key price levels where major bulls or bears battle with each other to give a decisive move in one direction.
When the prices of stocks drop, demand increases which causes their value to rise. This creates a pause in falling trends and forms what's known as support lines at various levels depending on the keen interest of buyers.
Resistance is the price level at which selling is assumed strong enough to prevent the price from rising. At this level, sellers are more inclined toward selling and buyers are less inclined toward buying.
Technical indicators are a great way for beginners in the stock market to bring some discipline and avoid unnecessary trades.
They also help Algo Traders design mechanical systems that manage their work more efficiently, all while remaining within an algorithm's programmed parameters.
Technically all the technical indicators can be divided into four types, as shown below:
Trend Indicators (moving average, MACD, etc)
Momentum Indicators (RSI, Stochastics, etc)
Volatility Indicators (Bollinger Bands, ATR, etc) and
Volume Indicators (Volume Profile)
Read this to understand the popular indicators in stock market trading.
Different Chart Patterns
Chart patterns are an important part of technical analysis that many traders use to identify where a particular asset might go next.
They're recognizable shapes you'll see on price charts, like trends or consolidation regions - but they don't always 100% predict what happens next!
There are hundreds of chart patterns in technical analysis. Below are some of the crucial chart patterns.