There are several methods for determining whether an investment is good or bad, as well as when to purchase or sell it. When considering a new investment, whether a stock or another type of security, the overall economy, economic statistics, financial statements, and fundamentals can all be useful considerations. One of them is technical research. What is technical research, exactly?
What is technical analysis?
Technical analysis is one way to analyze potential investments to determine if or when to buy or sell. It is based on the idea that supply and demand affect the price of a security and that changes in it can forecast future movement. On a more granular level, it uses the study of past price movements in an effort to determine future price movements of a particular security or group of securities. Instead of analyzing a company’s dynamics, such as its balance sheet or corporate structure, technical analysis uses price and volume data to attempt to predict future security prices.
The first tenet of technical analysis is a basic belief that the efficient markets hypothesis is correct. This means that all available information about a stock’s value is reflected in the stock’s price. When new information that would affect the value of a stock becomes available, it is quickly and completely absorbed by the market and reflected in its price.
The second basic tenet relies on a belief that prices will continue to move in the same direction until a technical indicator suggests a reversal. There are many different technical indicators, and the specific one chosen is up to the individual investor. The idea here is to identify and follow the trend until it shows signs of reversing. For example, if the price has been rising but now the technical indicator suggests it will start to fall, an investor may choose to sell that security.
The final tenet of technical analysis is that historical patterns in stock price movements tend to repeat themselves. This element of technical analysis relies on market psychology to interpret patterns in price charts. Market psychology is the collective sentiment of all investors, and the belief here is that this is what drives the ups and downs in security prices. When investors are optimistic about security, they will buy it and push the price up. When that optimism falls, they will sell and the price will fall.
SO that is about the first part of the basic guide to technical analysis. To know more about the Japanese candlestick chart stay tuned. If you want to start your investment journey start with opening a Demat account. Click here to claim your Demat account with a few clicks. To explore more opportunities click here.
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