Pathshala

What is Technical Analysis

noreply@blogger.com (NBIG) — Fri, 21 Jul 2017 21:00:00 +0530

Introduce

A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity

Technical Analysis -

Technical analysts believe that the historical performance of stocks and markets are indications of future performance. In a shopping mall, a fundamental analyst would go to each store, study the product that was being sold, and then decide whether to buy it or not. By contrast, a technical analyst would sit on a bench in the mall and watch people go into the stores. Disregarding the intrinsic value of the products in the store, the technical analyst's decision would be based on the patterns or activity of people going into each store.

When day trading, a trader makes the decision about what to trade, when to trade, and how to trade, using either fundamental or technical analysis. Both forms of analysis involve looking at the available information and making a decision about the future price of the market being traded, but the information that is used is completely different. Is it possible to use both fundamental and technical analysis together, but it is more common for a trader to choose one or the other.

Technical analysis is a method of forecasting price movements by analyzing statistics generated by market activity, such as previous prices and trading volume using charts and mathematical indicators to identify patterns that can suggest future activity, as it is based on the belief that the historical performance of stocks and markets are indications of future performance.

Despite the technical tool that is used, technical analysis actually studies supply and demand in a market in an attempt to determine what direction or trend will continue in the future by studying the market itself.

Almost every trader uses some form of technical analysis. Even fundamental analysis traders are likely to glance at price charts before executing a trade, as these charts help traders determine ideal entry and exit points for a trade. They provide a visual representation of the historical price action of whatever is being studied.

Benefits of Technical Analysis

•    Technical analysis focuses on price movement which is easily spotted at a glance through the charts.
•    Technical analysis applies to all charts, whether they are 5-minute charts for day trading or daily charts for longer term trading.
•    Trends are easily found as some indicators can quickly display a currency or security that is exhibiting a trend.
•    Patterns are easily identified as charts displays previous patterns and help predicting future ones, as the market tends to repeat itself.
•    Charting is quick and inexpensive as such technical indicators and tools are available via the net and they are automatically represented according to built-in calculations. Most brokers nowadays offer them to clients as part of their package.
•    Charts and indicators can provide a huge amount of information in only a few moments. There are more than fifty kinds of indicators and each provides information on different aspect of how a currency or a security is moving.

How technical analysis applies can be different for each trader. Every trader has their own interpretation of where they see trends and support. They also have their own ideas on setting up their indicators. The indicators and charts can be simple or sophisticated as they can provide only the most basic information on a trend or support and resistance, or go much deeper to provide information on the strength of a trend, how momentum is building, and whether formations are developing that the can be traded.

It is important to understand that technical analysis is not an exact science, and may not always give accurate predictions of the market movement; however, it is very useful in trading. It makes up only one portion of what you need to know when trading, but it is a very important thing to learn. Understanding technical analysis will give the charts some meaning when you look at them and help you understand why certain price movements occurred.

Types of Stock Market Analysis

noreply@blogger.com (NBIG) — Fri, 14 Jul 2017 19:23:00 +0530

Types of Analysis

Basically Stock Market Analysis by two main different methods and one supporting methods. The main two methods are work in different way. Both Method have different way of study a Stock. Investor or Traders has option to choose which method is suitable for his Strategy. The third method plays a very important role in the success of the main two methods.

There is no shortage of analysis for anyone interested in investing. A search for the term “stock market analysis” search result About 11,10,00,000 results (0.62 seconds) on Google and well over 63,60,000 results each on Bing, and Yahoo.

Three Types of Market Analysis

To begin, let's look at three ways on how you would analyze and develop ideas to trade the market. There are three basic types of market analysis:

Technical Analysis
Fundamental Analysis
Sentiment Analysis

There has always been a constant debate as to which analysis is better, but to tell you the truth, you need to know all three.

It's kind of like standing on a three-legged stool - if one of the legs is weak, the stool will break under your weight and you'll fall flat on your face. The same holds true in trading. If your analysis on any of the three types of trading is weak and you ignore it, there's a good chance that it will cause you to lose out on your trade!

Here’s a close look at each.

Fundamental Analysis

The goal of fundamental analysis is to determine whether a company’s future value is accurately reflected in its current stock price.

Fundamental analysis attempts to estimate the value of a particular stock based on a variety of factors, such as the current finances of the company and the prevailing economic environment. Fundamental analysis also may include speaking with a company’s management team and assessing how the company’s products are received in the marketplace.

When a fundamental review is complete, the analyst may decide the stock is an attractive opportunity because the market has underestimated its future prospects. The analyst also may determine the stock to be a “hold” or a “sell” if the value is fully reflected in the price.

Technical Analysis

Technical analysts evaluate recent trading movements and trends to attempt to determine what’s next for a company’s stock price. Generally, technical analysts pay less attention to the fundamentals underlying the stock price.
Technical analysts rely on stock charts to make their assessment of a company’s stock price. For example, technicians may look for a support level and resistance level when assessing a stock’s next move. A support level is a price level at which the stock might find support and below which it may not fall. In contrast, a resistance level is a price at which the stock might find pressure and above which it may not rise.

Sentimental Analysis

Sentimental analysis attempts to measure the market in terms of the attitudes of investors. Sentimental analysis starts from the assumption that the majority of investors are wrong. In other words, that the stock market has the potential to disappoint when “masses of investors” believe prices are headed in a particular direction.
Sentiment analysts are often referred to as contrarians who look to invest against the majority view of the market. For example, if the majority of professional market watchers expect a stock price to trend higher, sentiment analysts may look for prices to disappoint the majority and trend lower.
Which approach is best? There is no clear answer to that question. But it’s important to remember three things: Past performance does not guarantee future results, actual results will vary, and the best approach may be to create a portfolio based on your time horizon, risk tolerance, and goals.
Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.

3. Three Types of Stock Market Analysis

noreply@blogger.com (NBIG) — Fri, 7 Jul 2017 20:11:00 +0530

Three Types of Market Analysis

Technical Analysis

Fundamental Analysis

Sentiment Analysis

1.Technical Analysis

Technical analysis is the framework in which traders study price movement.

The theory is that a person can look at historical price movements and determine the current trading conditions and potential price movement.

The main evidence for using technical analysis is that, theoretically, all current market information is reflected in price. If price reflects all the information that is out there, then price action is all one would really need to make a trade.

Now, have you ever heard the old adage, "History tends to repeat itself"?

Well, that's basically what technical analysis is all about! If a price level held as a key support or resistance in the past, traders will keep an eye out for it and base their trades around that historical price level.

Technical analysts look for similar patterns that have formed in the past, and will form trade ideas believing that price will act the same way that it did before.

In the world of trading, when someone says technical analysis, the first thing that comes to mind is a chart. Technical analysts use charts because they are the easiest way to visualize historical data!

You can look at past data to help you spot trends and patterns which could help you find some great trading opportunities.

What's more is that with all the traders who rely on technical analysis out there, these price patterns and indicator signals tend to become self-fulfilling.

As more and more traders look for certain price levels and chart patterns, the more likely that these patterns will manifest themselves in the markets.

You should know though that technical analysis is VERY subjective.

Just because Ralph and Joseph are looking at the exact same chart setup or indicators doesn't mean that they will come up with the same idea of where price may be headed.

The important thing is that you understand the concepts under technical analysis so you won't get nosebleeds whenever somebody starts talking about Fibonacci, Bollinger bands, or pivot points.

Now we know you're thinking to yourself, "Geez, these guys are smart. They use crazy words like 'Fibonacci' and 'Bollinger'. I can never learn this stuff!"

Don't worry yourself too much. After you're done with the School of Stock Market, you too will be just as... uhmmm... "smart" as us.

By the way, do you feel that green pill kicking in yet? Bark like a dog!

2. Fundamental Analysis

Fundamental analysis is a way of looking at the market by analyzing economic, social, and political forces that affects the supply and demand of an asset. If you think about it, this makes a whole lot of sense! Just like in your Economics 101 class, it is supply and demand that determines price.

Using supply and demand as an indicator of where price could be headed is easy. The hard part is analyzing all the factors that affect supply and demand.

In other words, you have to look at different factors to determine whose economy is rockin' like a Taylor Swift song, and whose economy sucks. You have to understand the reasons of why and how certain events like an increase in unemployment affect a country's economy, and ultimately, the level of demand for its currency.

The idea behind this type of analysis is that if a country's current or future economic outlook is good, their currency should strengthen. The better shape a country's economy is, the more foreign businesses and investors will invest in that country. This results in the need to purchase that country's currency to obtain those assets.

In a nutshell, this is what fundamental analysis is:

For example, let's say that the Nifty- Sensex has been gaining strength because the Indian economy is improving. As the economy gets better, raising interest rates may be needed to control growth and inflation.

Higher interest rates make INR-denominated financial assets more attractive. In order to get their hands on these lovely assets, traders and investors have to buy some greenbacks first. As a result, the value of the INR will increase.

Later on in the course, you will learn which economic data drives currency prices, and why they do so. You will know who the Fed Chairman is and how retail sales data reflects the economy. You'll be spitting out interest rates like baseball statistics.

But that's for another lesson for another time. For now, just know that the fundamental analysis is a way of analyzing a currency through the strength or weakness of that country's economy. It's going to be awesome, we promise!

3. Sentiment Analysis

Earlier, we said that price should theoretically accurately reflect all available market information. Unfortunately for traders, it isn't that simple. The markets do not simply reflect all the information out there because traders will all just act the same way. Of course, that isn't how things work.

Each trader has his own opinion or explanation of why the market is acting the way they do. The market is just like Facebook - it's a complex network made up of individuals who want to spam our news feeds.

Kidding aside, the market basically represents what all traders - you- feel about the market. Each trader's thoughts and opinions, which are expressed through whatever position they take, helps form the overall sentiment of the market.

The problem is that as traders, no matter how strongly you feel about a certain trade, you can't move the markets in your favor (unless you're one of the GSs - George Soros or Goldman Sachs!). Even if you truly believe that the stock price is going to go up, but everyone else is bearish on it, there's nothing much you can do about it.

As a trader, you have to take all this into consideration. It's up to you to gauge how the market is feeling, whether it is bullish or bearish. Ultimately, it's also up to you to find out how you want to incorporate market sentiment into your trading strategy. If you choose to simply ignore market sentiment, that's your choice. But hey, we're telling you now, it's your loss!

Being able to gauge market sentiment can be an important tool in your toolbox. Later on in school, we'll teach you how to analyze market sentiment and use it to your advantage like Jedi mind tricks.

Which Type of Analysis is Best?

Ahhhh, the million dollar question....

Throughout your journey as an aspiring forex trader you will find strong advocates for each type of analysis. Do not be fooled by these one-sided extremists! One is not better than the other...they are all just different ways to look at the market.

At the end of the day, you should trade based on the type of analysis you are most comfortable and profitable with.

To recap, technical analysis is the study of price movement on the charts while fundamental analysis takes a look at how the country's economy is doing.

Market sentiment analysis determines whether the market is bullish or bearish on the current or future fundamental outlook.

Fundamental factors shape sentiment, while technical analysis helps us visualize that sentiment and apply a framework for our trades.

Those three work hand-in-hand-in-hand to help you come up with good trade ideas. All the historical price action and economic figures are there - all you have to do is put on your thinking cap and put those analytical skills to the test!

Let me pull out that three-legged stool again just to emphasize the importance of all three types of analysis.

Take out one or two legs of the stool and it's going to be shaky!

In order to become a true Stock market master you will need to know how to effectively use these three types of analysis.

Don't believe us?

Let us give you an example of how focusing on only one type of analysis can turn into a disaster.

Let's say that you're looking at your charts and you find a good trading opportunity.
You get all excited thinking about the money that's going to be raining down from the sky.
You say to yourself, "Man, I've never seen a more perfect trading opportunity in the stock market. I love my charts. Mwah. Now show me the money!"
You then proceed to buy with a big fat smile on your face (the kind where all your teeth are showing).
But wait! All of a sudden the trade makes a move in the OTHER DIRECTION! Little did you know, one of the major banks in London filed for bankruptcy! Suddenly, everyone's sentiment towards Britain's market turns sour and everyone trades in the opposite direction!
Your big fat smile turns into mush and you start getting angry at your charts. You throw your computer on the ground and begin to pulverize it. You just lost a bunch of money, and now your computer is broken into a billion pieces. And it's all because you completely ignored fundamental analysis and sentimental analysis.

(Note: This was not based on a real story. This did not happen to us. We were never this naive. We were always smart traders.... From the overused sarcasm, we think you get the picture.)

Ok, ok, so the story was a little over-dramatized, but you get the point.

Remember how your mother used to tell you as a kid that too much of anything is never good?

Well you might've thought that was just hogwash back then but in forex, the same applies when deciding which type of analysis to use.

Don't rely on just one.

Instead, you must learn to balance the use of all of them. It is only then that you can really get the most out of your trading.

Where do we go from here?

Now that you're done with Kindergarten and learned a little bit about each type of analysis, it's time to delve much deeper! Here's what's in store for the next few years of your life...
We're kidding, we're kidding! We're talking about the next few school years in the School of stock market.
Grade school will be all about basic technical analysis tools.
You'll learn all about the dynamics behind price action, such as support and resistance levels, candlestick formations, and common chart patterns. You'll experiment with leading and lagging indicators and discover how to use them in coming up with trade ideas. Sounds pretty exciting, doesn't it?
The remaining years of middle school and high school are devoted to studying more technical analysis tools.
We'll take a look at the more advanced tools also such as pivot points, divergences, Elliott Wave Theory, and Gartley patterns. Sounds fancy? It's because they are! Bet you can't wait to get started on those!
College will be a bit more complicated since you'll be tackling both fundamental and market sentiment analysis at the same time. Talk about hitting two stones with one bird! You're the bird and the stones are... well, you get the point.
A couple of reasons why we're putting fundamental and market sentiment analysis together:

By the time you reach college, you'll be so hooked on learning more about stock market that one lesson simply won't be enough.
It is hard to draw the line between fundamental analysis and market sentiment analysis.

As we mentioned earlier, fundamental factors are mostly responsible for shaping market sentiment. Those two types of analysis would take up both freshman and sophomore year of college.