You are here

Technical Analysis Course

Let
us start with a simple example of a food festival. We will see a lot of vendors
and a lot of customers at different vendors. There are two things we can do:

1. Go
to the most populated store and ask for the most popular dish from the fellow
customers and take one of our choices.

2. Google
out the various outlets, checks their ratings, and find our favorite dishes and
reviews. Go to the specific store and pick the dish we like to eat.

Both
methods have their own benefits. The first method is technical analysis, based
on the volume of customers and demand. The second method is the fundamental
analysis based on the details and need.

In
terms of markets, what is “Technical Analysis”?

The
process of trying to gain knowledge of future price movement, based on past
trading data gathered due to price and volume changes is technical analysis.

History
usually repeats itself and stocks behave very similarly at different price
points. This understanding of the markets drives users towards trying to
predict the price movements of different securities. Any trade has two ways to
go:

1. In
the direction of the trade.

2. In
the direction opposite to the trade.

Technical Analysis gives various
pointers that help to understand the direction of the price. While providing
details of the direction of the price, technical analysis also helps in
understanding the possible risk in case of a failed trade and possible reward
in case of a successful trade.

The
basis for any technical analysis is the historic data of the security. The
charts provide the path taken by the security to reach the price. Different
prices and changes in trends can be understood by the behaviour of the price at
specific points.

Support and Resistance

Support
and Resistance are two words that are highly used in the process of studying a
stock for technical analysis.

a. Support
is the price, where the fall can stop and change direction.

b. Resistance
is the point at which the price can face resistance, to rise up further ahead.

The
process of knowing the support and resistance helps in understanding the risk
and reward for a trade.

Let
us take a small example. In this case a stock XYZ. XYZ is a company, whose stock
price is today 75 rupees. The stock had fallen to a low of 65 rupees four
months back and reached a high of 140 rupees a few months back and moved from
110 to 140 rupees in 5 trading sessions. To pick a trade at this point, there
are two points to consider:

1. In
the case of a loss, a loss of 10 rupees per share is possible.

2. In
the case of a profit, a profit of 65 rupees per share is possible.

There
is a free movement of price from the point of 110 to 140 on the charts. The
stock is in high demand above the price of 110. The stock is a good trade
because the risk to reward ratio is 1:6 or more. This is the understanding
gained by looking at the technicals of a stock.Technical
Analysis a tool for traders. You can never be called a trader, without knowing
technical analysis. At Traders Gurukul, we enable you to understand markets
through various technical analysis tools. Join the fastest growing learning
community on Traders Gurukul.