Technical Analysis: Part 1 (Basics)

What is Technical Analysis?

• analysing the historical charts to forecast the future TREND of particular stock or Index by using multiple technical indicators such as volume, chart patterns etc.
• study of Demand & Supply in a market to determine what direction or trend will continue in future.

The field of Technical Analysis is based on three assumptions.

• The market discounts everything: Technical Analyst assumes that, at any given time, a stock price reflects everything that has or could affect the company including fundamental factors. They believe that the company’s fundamentals, along with broader economic factors & market psychology are all priced into the stock, removing the need to actually consider these factors separately. 
• Prices moves in trend: In Technical Analysis price movements are believed to follow trends. This means once the trend is established, the future price movement is more likely to be in the same direction as the trend than to be against it. Most Technical Analyst trading strategies are based on this assumptions. 
• History tends to repeat itself: Technical Analysis uses historical charts patterns to know the market movement & understand the trends. These charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves.

There are two forms of analyzing the stock: Technical Analysis & Fundamental Analysis. Difference between both as follows

• Charts vs Financial Statements: Technical Analyst believes that all the information will get in historical charts to determine the price of stock. Fundamental Analyst tries to determine the company's value by studying balance-sheet, cash flow statement, income statement. 
• Time Horizon: Technical Analyst can predict the short term price of stock by analyzing weekly, daily & even minutes charts Fundamental Analyst takes relatively long term approach to analyze the stock price as compare to technical Analyst. 
• Trading vs Investment: Technical Analysis is used for intraday or short term trading. Fundamental Analysis is used for Investment.

Next, in part 2 we will see charts types.