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Basics of Technical analysis

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Introduction

Market analysis is broadly categorized into two main methods, the first one is fundamental analysis and the second one is technical analysis. In fundamental analysis, an analyst needs to look at the financial statements of a company, its business model, overall macroeconomic scenarios, management capabilities, and many more things for finding a specific fair value of a company. On the other hand, technical analysis is not at all concerned with this detailed study of fundamental factors. On the contrary, a technical analyst only looks at the price of a stock derived as a result of supply-demand interaction. For a technical analysts’ price is supreme and he or she sees price as a manifestation of every fundamental reality. Hence, they look only at two main aspects of the market. Price -over -time and volume.

The entire discipline of technical analysis is based on these two data points, price over time and volume. All patterns, indicators, concepts are derived from these two basic data points. Technical analysis is a very interesting subject. This is not a definitive science, rather a probabilistic discipline. In simple terms, it is more of an art than science. There are well-known chart patterns or indicators in the market. But nothing works 100% of the time. We still follow them because they work more number of times than they fail. Hence emerged the concept of probability, the number of times anything works among the number of times that occur. This ratio is different in different stocks in different phases. That is why it is called an art. With experience, a chartist is able to form an opinion of his or her own so that he has some extra edge on the market assessment than someone having just bookish knowledge of technical analysis. This basic module on technical analysis is your stepping stone towards the journey to becoming a seasoned technical analyst. We request you to go through the concept slowly one at a time and keep observing charts on a regular basis. Look at old charts and also look at contemporary live charts. Once you find a pattern or some indicator try to predict the future move and note down your prediction. Then as time flows try to match the price action with your prediction. Then analyze why it worked or not worked. Make notes and progress with the module and the notes. This is a long journey and we wish you the best of luck.

 

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