Does Technical Analysis Work?

More on Share Market Analysis

Does Technical Analysis Work? Really? I mean if you are pondering over this point, then either you are a beginner or things have not really worked out the way you wanted them to be!

Well, trust me, there is no magic wand that can ensure that all your decisions in stock markets generate favourable results.

Technical analysis of stocks implies predicting future price movements of a share or an index on the basis of its previous price and volume patterns.

Now, the point that does technical analysis work is completely based on the assumption that history repeats itself and it is possible to make predictions on the basis of history.

Another assumption of technical analysis is that the current stock price reflects all kinds of news and everything till that moment.

Technical analysis is done through technical charts, technical indicators and oscillators.

One needs to be able to read technical charts and know different technical indicators that are used for predicting price trends and also signal reversal of price trends.

Also, another important thing to remember is to combine the knowledge of technical indicators with the patterns of volumes traded. Without combining all this knowledge, one may not be able to predict the price movements accurately.

Let us take an example where technical analysis can work but only if the combination of factors is taken into account.

Suppose the price of a stock is in an uptrend and the volumes are also good, then, it is a bullish signal.

On the other hand, suppose the price of a stock is rising at a good pace but the volumes in the support of the price rise are not high enough, then, it could be a bull trap.

So, if a trader has not been paying attention to the volumes of the trade happening along with the price rise, he/she might have lost money by entering in long positions.

Similarly, the concepts of support and resistance are very important in technical analysis.

Support is a level where the bullish forces start overpowering the bearish forces after the price decline has already taken place for some time.

Resistance is a level where the bearish forces start overpowering the bullish forces after the price rise has already taken place for some time. If these breakouts and breakdowns are not supported by volumes of trades, then, those could be false breakouts and false breakdowns. 

One has to be always cautious while doing technical analysis.

Sometimes, buy and sell signals are generated on-screen on the basis of technical indicators but you always need to be vigilant and always play with an already defined stop loss in order to protect yourself from unfavourable stock price movements and heavy losses because of them.

If you are interested in knowing the basics of technical analysis and figure out that does technical analysis work, understand technical indicators and how to use them effectively in real life in the stock market, then, you can download this stock market education app and start taking an online course on technical analysis as well as technical indicators.

The app is called Stock Pathshala and has a lot of stock market-related content for beginners as well as experienced players.

Nonetheless, in case you are looking to get started with stock market investments, let us assist you in taking the next steps ahead.

Just fill in the form below to get started:

Open Free Demat Account
Enter basic details here and a Callback will be arranged for You!

Add a Comment

Your email address will not be published. Required fields are marked *

fifteen − one =