What is Technical Analysis – How important is technical analysis in trading?

by
Table of Contents hide
1 Introduction
2 What is technical analysis?
3 How important is technical analysis in trading?
3.1 3. Risk: There is risk in every trade especially in short-term trades, through technical analysis, you can find out where to exit if your trade is going in the wrong direction, which is called STOP LOSS.
3.2 Related
    What is Technical Analysis
    Technical Analysis


    Introduction

    Friends, from today I am going to start a series on Technical Analysis in which I will try to cover as much material as possible and will try to do it in very simple language. Today the number of traders in the stock market is high and analysis is very important in trading, that is why I have taken up this topic.

    First of all, keep this in mind, chart analysis in trading is as important as food for the body. If you are trading without chart analysis, then understand that you are playing with fire and you need to be careful. Without chart analysis, you are just gambling and doing nothing. Due to this the name of the market gets tarnished. People lose money without thinking and then say that the market is a gamble.


    Read More:  Which Time Frame is Best for Intraday Trading: Important Things for Traders to Know

    What is technical analysis?

    Technical analysis is just a way of reading charts in which the help of many tools is taken. Once you start practicing, analyzing is not rocket science.


    Suppose you have ever gone to a foreign country and you do not have knowledge about the food there, then what will you do?
    You went to the market and saw that there were many food shops selling different types of food items. 

    What is Technical Analysis
    What is Technical Analysis

    You are confused about whose shop to go to and what to eat. You adopt some methods from your side so that you can know whose shop to go to and what to eat.

    1. First of all, either go yourself and see the food items available in every shop and check whether you want to eat them or not. The advantage of this method will be that you will analyze all this yourself, but the other aspect of it is that there will be dozens of shops in the market, which one will you go to and check?


    2 . Another way is to stand on one side and see which shop is getting the most crowd. When you find a shop where there is a maximum crowd of people to eat and drink, then you can go to that shop and eat food comfortably. The advantage of this method is that instead of you checking yourself, the crowd will tell you which is the best shop and food in the market. But is the crowd always right?

    If you pay attention, you will find that the first method is similar to FUNDAMENTAL ANALYSIS because you are doing research yourself and the second method is TECHNICAL ANALYSIS because you are seeing the TREND and where there is the most crowd. 

    How important is technical analysis in trading?

    Technical analysis is the only way by which you can find out where traders are trading the most in the market. Technical analysis is a way to spot trading opportunities. By looking at the charts we can find out which way the traders are inclined. 
    How important is technical analysis in trading?
    How important is technical analysis in trading?

    Different types of patterns are formed on charts and by identifying those patterns we can find trade opportunities. It simply means that a technical analyst looks at the chart and forms his opinion on whether he wants to BUY or SELL the stock.

    Some things you should keep in mind while doing technical analysis:

    1. Short-Term Trades: By doing technical analysis you can find short-term trades like 1 day, 2 days, 1 week, 2 weeks, or a maximum 1 month which we call swing trading. If you want to stay invested for a long time, then use fundamental analysis and not technical analysis.
    2 Expectations from every trade: Since these trades are for short time periods, you should not think of earning huge profits. The advantage of trading with technical analysis is that you can earn small profits continuously.

    3. Risk: There is risk in every trade especially in short-term trades, through technical analysis, you can find out where to exit if your trade is going in the wrong direction, which is called STOP LOSS.

    In this blog, I gave you an idea of what technical analysis is and why it is used.
    In the upcoming blogs, I will tell you which main indicators are used in technical analysis. for example:-


    Indicators of Technical Analysis

    MOVING AVERAGES
    RSI
    MACD
    STOCHASTIC
    SUPERTREND


    I will explain all the indicators with examples of how to use them on charts.


    Read More: 










    Leave a Comment