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The stock market is a pretty complex place. Stocks keep trading. Prices keep rising and tumbling. Some companies hit their highest at a point, while some sink to the bottom.
And this doesn’t happen once in a while but a routine!
Now, as a share market player, you must not look at these as merely events but changes that can affect your investments and profitability. You should be able to analyze what’s happening across your spectrum and make informed forecasts that drive your decisions.
So, how do you do that? Impulses? Of course not! The answer is technical analysis.
Technical analysis forms a crucial aspect of share market classes in Pune.
Comprehensive courses cover it in depth, enabling students to analyze price movements.
However, by overviewing the topic before delving into it, you can prepare for it better and learn related concepts seamlessly. So, why wait then? Let’s see what technical analysis is and what its significance is across the stock market horizon.
What is Technical Analysis?
Technical analysis refers to studying price movements and trading volume with charts and patterns. It is an analysis methodology, which instead of diving into a company’s financials, includes analyzing the behavior of a stock. Thus, the analysis involves spotting trends, market psychology, and momentum.
Technical analysis isn’t a one-time activity but a continuous one. Thus, it is as important for professionals as it is for beginners. However, as the latter, understanding the importance of technical analysis is necessary so that you never miss it.
5 Reasons Technical Analysis Is Critical While Achieving Stock Market Success
From spotting trends to using indicators, here are four factors that make learning technical analysis during share market classes and later using it, significant.
1. Identifying Trends
Stock prices often follow a particular trend, identifying which helps you make an informed investment decision. It involves understanding whether prices usually move upward (an uptrend), dropping (a downtrend), or moving sideways.
Recognizing these trends using trendlines (lines that connect the highs or lows on a chart), can increase the chances of making profitable trades. Remember, it is usually more prudent to ride the wave instead of going or betting against it!
For example, if you see a stock price making higher highs and higher lows on a chart, it indicates an uptrend. Technical analysis would suggest this is a potentially good time to consider buying with the hope that the trend continues.
2. Recognizing Patterns
We all follow a particular pattern or routine in life. So, when someone tries to analyze our routines, they will observe specific patterns and draw the required inferences.
Stock markets are pretty similar. They form recognizable patterns that can provide clues about future price changes or movements. Patterns named Double Top (a bearish reversal pattern), Head and Shoulders, or Triangles (continuation or reversal patterns) signify the psychology of buyers and sellers.
Mastering the skill of identifying patterns can help you achieve a significant edge in forecasting potential breakouts or price reversals.
For instance, the head and shoulders indicate a bearish reversal pattern. Identifying this pattern after an upright trend might denote a weakening upward momentum and a downward trend lurking on the horizon, urging you to consider selling the stock.
3. Identifying Support and Resistance Levels
Every stock has a support and resistance level.
A support level is like a price floor, a level where a stock price historically stops falling and finds buying interest. On the other hand, a resistance level is like a price ceiling, a level after which a stock price has historically stopped rising and experienced selling pressure.
By identifying these levels with past price action, you can determine the potential entry and exit points for your trades. Thus, buying a stock near a support level and selling it near a resistance level is a fundamental, yet effective strategy.
However, this is possible only when you learn how to perform technical analysis!
For example, a stock repeatedly bounces back from Rs. 200 in the past. Thus, you may consider the Rs. 200 support level and look to buy near this level, forecasting another bounce.
On the other hand, if the stock couldn’t surpass the Rs. 250 level across multiple instances in history, you may consider Rs. 250 the resistance level – a potential selling point!
Don’t just invest invest wisely for the future. See how patience pays off!
4. Using Indicators
Technical analysis involves mathematical calculations called indicators plotted on price charts. They provide additional insights into the volatility, momentum, and oversold and overbought conditions of a particular stock – just like Moving Average, RSI, and MACD do.
For example, a Moving Average can iron out price variations and provide a clear view of the underlying trend. The RSI (Relative Strength Index) can help you identify if a stock is potentially oversold or overbought.
Technical Terms
- Moving Average: It smooths out price data to identify the direction of a trend over a period. Types include Simple Moving Averages and Exponential Moving Average.
- MACD: It is a momentum indicator that displays the relationship between two Exponential Moving Averages (EMA)
- RSI: It is a momentum oscillator that helps measure the pace and change of price movements from 0 to 100.
5. Prevent Emotional Decision-Making
Believe it or not, the stock market runs on sentiments! Many of us wouldn’t want to believe it but that’s true, despite advancements in technology and all the good and bad lessons experienced people have had due to emotional decision-making.
Technical analysis helps you avoid sentimental choices or decision-making. It lets you remove emotions from the stock equations by adopting a purely data-driven approach while making decisions. Thus, you make decisions based on clear signals and patterns rather than trusting your instincts, which may or may not always be right!
Final Words!
Mastering technical analysis is essential to become a successful stock market player. It helps you make informed choices and make decisions at potentially the right time based on charts, insights, and patterns. But can you learn this on generic platforms? The answer is a resounding NO! The only place to learn these things formally and effectively with practical experience is share market classes in Pune.
EMS precisely serves as the place where you can learn the various aspects of the stock market, including technical, strategic, and emotional. Our comprehensive courses cover these dimensions and provide abundant real-time practical exposure so that you step out as a more confident stock market player, capable of playing it independently.
Want to know more about our courses and classes? Call us at +91 95618 61818 and enroll with us to become a part of our successful alumni.
