What is Technical Analysis?
Technical analysis is the study of prices that involves the study of stock’s trading patterns, with the use of some indicators and tools, in order to predict the future market movement of the stock’s price that enables to identify different trading opportunities.
The advantages of technical analysis are that it can be applied to virtually any trading instrument and in any timeframe. Technical analysis can be used to analyse anything from stocks, commodities, interest rates or forex. You can also apply technical analysis from a short term perspective to a longer term time frame.
The most important aspect of Technical Analysis is Identification of correct trend. Technical Analysts strive to identify the trend correctly with the help of Candlestick/Bar/Line charting as well as various trading indicators like Moving Averages, RSI, volumes and so on.
Technical Analysis aids in analysing the disparity between supply and demand, thus identifying trends and thereby are better equipped to capture superior returns.
A technical analyst asks “what is happening?” instead of “why is it happening?” since the TA works to fill the gap between the intrinsic value of a security and its market price.
Technicians are often on the lookout for price patterns to better understand the market movement from the perspective of behavioural finance. This helps the TA identify potential opportunities and be alert to the various risks in the financial markets. They may also use indicators derived from price and volume to confirm the current market move and keep an eye out for when the price action shows divergence from the indicator thereby opening doors to new opportunities.