By: Mr. Sameet Chavan, Chief Analyst -Technical and Derivatives, Angel Broking Ltd
Stock market investors are aware about the difficulties faced while investing in shares, especially when there is a lack of necessary information on instabilities. In times of market volatility, the uncertainty is exacerbated further when investors cannot predict the price fluctuations.An average investor usually bets on the advice of his investment/portfolio manager or on predictions made my experts. With the help of Technical Analysis, investors will be able to get insights by observing stock charts and allow them to take calculated risks in stock investing, resulting in higher returns.
By studying the price and volume variations of stocks over a period of time, it gets easier to make price predictions for the future. While technical analysis may not be a definitive tool that fetches the best results with 100% accuracy, it is still valuable in making the right choices when equity markets are Bearish.
Here are some of the features of technical analysis that people have to understand while investing:
1. Short term trading-
Technical analysis is a credible tool used by short term traders for momentum investing to help investors gauge the current trajectory of the stocks. As it is a risky proposition to buy, sell or hold stocks in a relatively limited time frame, reliance on a method or certain tools for studying patterns and trends can help control the risk factor. Furthermore, traders use it as a tool to edge out unsure investors, as it provides the advantage of identifying promising stocks and take swifter decisions.
2. Entry and Exit Points-
By analyzing stock charts, investors are able to time their entry and exit points for buying and selling shares. This helps in understanding the demand and supply and break out trends and aptly determine the timing for greater returns. With the excessive stock details confusing people and blurring decision making, technical analysis can simplify the important indicators, streamlining trading for investors.
3. Analysis of Price Patterns-
Being one of the most important elements of determining intelligent decision making in stock trading, analysis of price patters through technical analysis can immensely help investors buy or sell at the best price. This allows them to avoid undervaluation and overvaluation as price movement prediction becomes easier.They can also be useful in projecting potential targets, while early trend reversals can be identified.As patterns tend to repeat themselves, investors get to make informed decisions much ahead of those who do not apply technical analysis on a day-to-day basis.
4. Support and Resistance levels-
In this scenario, the price levels of stocks oscillate within a limited range over a significant amount of time, making it difficult to predict and make calls on stock sales and purchases. With the assistance of technical analysis, identifying support and resistance levels within stock charts could provide the investor relevant choices to decide on buying or selling. If a particular stock surpasses the support and resistance range, it is worthy of a trade, indicating good health and demand.
5. Analysis of Trends
Whether it is the utilization of a Technical Analysis tool or otherwise, understanding the current trends for stock markets is a basic necessity for any investor before they enter the system. For insightful decision making, it is necessary to get on top of current and broader degree market trends and technical analysis brings the historical, current, overall performance and health of a given stock to the fore. Be it uptrends, downtrends or horizontal trends, investors will be able to judge purchases and sales better.
6. Combination of Price and Volume Analyses
Finally, analyzing price movement and volume as a combine, often helps investors determine the genuineness of any move, as supply and demand cycles affect changes in both the aspects. Technical analysis allows an overview of the history of volume of trade, which helps ascertain stock trends. For instance, when stock price increases and the trade volume increases as a consequence, a positive trend can be identified. If the trade volume observes a marginal increase, it is identified as a reverse trend. Combined study of the two aspects therefore allow investors to understand patterns better.
Therefore, to invest with the right strategy, technical analysis tools can be beneficial in the overall assessment of the stock charts and the subsequent timely availability of trading options.
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