What may appear to be complicated on the surface, usually boils down to the basics! Whatever involves Math usually looks ugly to us but we cannot deny the fact that a little understanding of mathematics is of great importance in stock market. The stock market is so complicated to understand at times that you get disinterested to such an extent that either you get lost learning deep in the market or just pulls off the plug once and for all. Whichever category you belong to, we have just the right guidance for you if you are trying to understand the technical analysis of stock market.
What is technical analysis?
The complication of stock market boils down to simple demand and supply factor to understand the direction of the trend. Technical analysis is the study of the statistical and historical data of the market including the price and the volume. This is basically the job of the technical analyst to study the economic and the market behavior of the market to make future predictions of the stocks. So we can conclude that the basic study of chart pattern and trends of the stock prices is known as technical analysis. Do we need to do it? Not necessary but who would say no to money if it can be easily earned with basic study of patterns and trends.
The technical analysis is in simple words, the study of the charts, patterns and trends that has been going in the market about the stocks. This process of technical analysis is not a new process but a traditional practice performed since ages, it’s just we have named it something now. We have been looking at the trends of the winning and losing of a particular team in various sports and pick our favorite ones, or the speculations we used to make in our junior class on result’s day about who is going to come first based totally on their previous records. These were just few basic examples of the technical analysis and how we have been using it all the while. Now, using technical analysis in stock market needs some basic understanding of few concepts of economic and behavioral science to understand the ongoing trend in the market. Now this looks like a calk walk, isn’t it?
To be honest, money is the greatest incentive of this analysis and everything boils down to money. The technical analysis can be of great help if done correctly and it will be directly reflected on your financial health. Few points are discussed below to understand the importance of technical analysis:
- Calculated speculation: A well-researched speculation is better than just a random blunder in the stock exchange. With technical analysis, you know the direction of the stocks, where they are heading towards and you know what might happen. Technical analysis gives you an edge while making speculation; in short you are making a calculative speculation which will increase your probability of making gains in the stock market.
- Early signs of upcoming danger: When you are constantly using the technical analysis in the stock market, you realize certain opportunities and dangers due to the constant uptrend or downtrend of a particular stock and this gives you an opportunity to pull off the plug before a danger strikes or cash in before a jackpot is about to happen.
- Short-term opportunities: While on a constant scanning of the stock market you sometimes sees an opportunity like a particular company is selling a major part of its assets or purchasing some which might have a huge short-term impact on the prices of the stock so technical analysis also helps in identifying short-term opportunities.