By Shravan- Stock Market Enthusiast
In financial markets, technical analysis is a method for determining the direction of prices through the study of past market data, primarily price and volume.
“Investors, according to technical analysts, collectively mimic the behaviour of previous investors. The market’s emotions may appear irrational to a technical, but they do exist. Technicians believe that because investor behaviour is so consistent, recognizable (and predictable) price patterns will develop on a chart. The technician may be able to select deals with a higher chance of success if certain patterns are recognized.”
“Technical analysts also use a variety of market indicators, some of which are mathematical price transformations that often include volume, advance/decline data, and other inputs. These indicators are used to determine whether an asset is trending and, if so, how likely it is to continue in that direction. Relationships between price/volume indices and market indicators are also looked for by technicians. The moving average, relative strength index, and MACD are all examples. Correlations between variations in Options (implied volatility) and put/call ratios with the price are two further areas of research.
Technical analysis employs a variety of methods. Many traders blend aspects from multiple systems, such as Candlestick analysis, the oldest kind of technical analysis devised by a Japanese grain merchant; Harmonics; Dow theory; and Elliott wave theory. Some technical analysts utilize the subjective judgement to determine which pattern(s) a given instrument represents at any given time and how that pattern should be interpreted. Others take a purely mechanical or methodical approach to pattern interpretation and identification.”
According to technical analysis, prices already reflect the underlying fundamental reasons. Technical indicators are intended to uncover trends, yet neither technical nor fundamental indicators are ideal. Some traders just use technical or fundamental analysis to make trading decisions, while others combine both.”
