Technical Analysis Courseby Traders Gurukul Stock Market Training Institute
Let us start with a simple example of a food festival. We will see a lot of vendors and a lot of customers at different vendors. There are two things we can do:
1. Go to the most populated store and ask for the most popular dish from the fellow customers and take one of our choices.
2. Google out the various outlets, checks their ratings, and find our favorite dishes and reviews. Go to the specific store and pick the dish we like to eat.
Both methods have their own benefits. The first method is technical analysis, based on the volume of customers and demand. The second method is the fundamental analysis based on the details and need.
In terms of markets, what is “Technical Analysis”?
The process of trying to gain knowledge of future price movement, based on past trading data gathered due to price and volume changes is technical analysis.
History usually repeats itself and stocks behave very similarly at different price points. This understanding of the markets drives users towards trying to predict the price movements of different securities. Any trade has two ways to go:
1. In the direction of the trade.
2. In the direction opposite to the trade.
Technical Analysis gives various pointers that help to understand the direction of the price. While providing details of the direction of the price, technical analysis also helps in understanding the possible risk in case of a failed trade and possible reward in case of a successful trade.
The basis for any technical analysis is the historic data of the security. The charts provide the path taken by the security to reach the price. Different prices and changes in trends can be understood by the behaviour of the price at specific points.
Support and Resistance
Support and Resistance are two words that are highly used in the process of studying a stock for technical analysis.
a. Support is the price, where the fall can stop and change direction.
b. Resistance is the point at which the price can face resistance, to rise up further ahead.
The process of knowing the support and resistance helps in understanding the risk and reward for a trade.
Let us take a small example. In this case a stock XYZ. XYZ is a company, whose stock price is today 75 rupees. The stock had fallen to a low of 65 rupees four months back and reached a high of 140 rupees a few months back and moved from 110 to 140 rupees in 5 trading sessions. To pick a trade at this point, there are two points to consider:
1. In the case of a loss, a loss of 10 rupees per share is possible.
2. In the case of a profit, a profit of 65 rupees per share is possible.
There is a free movement of price from the point of 110 to 140 on the charts. The stock is in high demand above the price of 110. The stock is a good trade because the risk to reward ratio is 1:6 or more. This is the understanding gained by looking at the technicals of a stock.
Created on Nov 24th 2020 23:15. Viewed 203 times.