Investors and traders are generally taking their decision on any counter (stock) for entering/exiting/hold based on either technical or fundamental analysis. Many smart investors use fundamental analysis to choose stock but when they enter or exit from that stock that decision they take based on technical analysis. So what to choose is based on fundamental analysis and when to enter or exit into/from a counter is based on technical analysis.
Now what is technical analysis? What are tools in technical analysis? Technical analysis basically a method of analyzing supply and demand of a stock or other tradable things on exchange.
Method of analysis:
a) Study different charts of stock price: It helps to understand the price movement pattern in past.
i) Line Chart
ii) Bar Chart:
ii) Candle sticks chart:
Image source: www.moneycontrol.com
b) Pattern Study: Here two things need to understand. These two are support and resistance.
c) Indicators & Oscillators:
d) Dow Theory & Eliot Wave Theory:
Dow theory (Charles H Dow-1851-1902) is said on his six basic principles
i) The stock market discounts all information available
ii) It has three trends- primary, secondary and minor.
iii) Primary trend has three phases.
iv) Stock market indexes must confirm each other.
v) Volume must confirm the trend
vi) Trend remains intact until and unless clear reversal signals occur.
Elliot wave theory: It says stock prices has two kind of clear trends.
Dominant trend (It has five wave patterns)
Corrective trend (It has tree patterns)
Technical analysis consists of all those things discussed. Each method itself big subject. Sometimes confusing to apply in practical life. Investors have to understand which will be effective for which counter. So it needs experience and practice to learn and succeed in share market.
Image credit : www.moneycontrol.com