Technical analysis is the soul of trading. If you want to make profits from trading, you should be very well versed in technical analysis. You need to know about the broader market movement using Nifty and Sensex. In this article, we will help you understand some basics of technical analysis.
1. Market knows everything
First, let us know about some assumptions of technical analysis:
According to this assumption, every news in the market has already been priced in. So you can be sure that the market is neither overpriced nor underpriced.
2. Price moves in a pattern
According to this assumption, the market is not random. There is a reason behind every price movement. This is the assumption that allows us to predict the future price.
3. History repeats itself
It has been observed from time to time that the market reacts similarly to the same news. This is the reason history repeats itself in the market.
4. Focus on short-term
Technical analysis is concerned about short-term movement in the market. It can be a month-long or a few seconds. For long-term forecasting, you have fundamental analysis.
5. Charts and graphs
Charts and graphs are an integral part of technical analysis. All the technical analysis is done using charts and graphs. Every trader spends all his life reading charts!
Uptrend is the situation when the stock price is rising. You can get an uptrend for a few seconds or a few months. It is dependent on the time frame you are looking at.
When the price is continuously falling it is called a downtrend. Similar to an uptrend, a downtrend can also last for a few seconds to a few months. It also depends on the time frame you are looking at.
8. Horizontal trend
When the price is stuck in a range it is called a horizontal trend. It is neither uptrend nor downtrend. In this situation, the market is very unpredictable.
9. Support and resistance
In technical analysis, support refers to a price range where the market will no longer fall. This is the price where buyers get active and pushes the price higher. On the other hand, resistance is the price range where the market will no longer rise. This is the price where sellers get active and pushes the price downward.
10. Trade volume
Trade volume is very important when you are trading. Volume refers to the number of shares bought and sold. If the price increases with the increase in volume, it is a valid uptrend. Similarly, when the price decreases with the decrease in volume, it is a valid downtrend.
Indicators help you gauge the future price movement. Many indicators are frequently used by traders: moving average, relative strength index (RSI), moving average convergence divergence (MACD), etc.
To sum up
These were some of the very basic things that you must know before entering the stock market. If you want to open a trading account you can take the help of 5paisa. They are one of the best brokers out there in the market.