Technical Analysis Learner

What is Technical Analysis

Technical Analysis is the statistical study through which direction of the movement of asset is determined by using historical data.  Immediately a thought comes in our mind that whether these predictions are reliable, but in our daily life there are many things which we predict based on the past data, For example: Whenever doctor sees the report, he is able to predict the disease on the basis of symptoms this is nothing but simply the analysis done.

Technical analysis is a method of evaluating securities that involves a statistical analysis of market activity, such as price and volume.

One major advantage of this analysis is that same type of analysis can be applied in different class of assets. for example –Stock, commodities etc. But fundamental analysis is usually differently done for different kind of assets.

Assumptions of Technical analysis-

There are basic three major assumptions of Technical analysis:

1.    The market discounts everything.

It assumes that stock price reflects every activity of the company, whether it is its financials or some external news. Technical analysis says that if there is some bad news then its price will go down and thus it will reflect in its trend and similarly vice versa.

2.    Price moves in trends

This analysis also assumes that price of a stock follows a trend whether it is upward, downward or flat. And this trend gives indication to the trader whether prices are going to be down or up.

3.    History tends to repeat itself

This is the most important factor. It is assumed that behaviour of the investors is of repetitive nature and investor tends to behave in a same way as they have behaved in the past to a particular situation.

So this was a small introduction to fundamental analysis tool, further we will be discussing in details each tools.

Different types of Charts

Okay, to start learning Technical analysis the very first basic step is to know about different types of charts because charts are the base on which whole technical study depends.

In a chart usually horizontal line represents time frame which can be one day, one month, one year etc. and vertical line represents stock price.

There are basically three types of charts:

1.      Line Chart

2.      Bar Chart, and

3.      Candle stick chart

LINE CHART

Line chart is a type of chart which displays information as a series of data points called 'markers' connected by straight line segments. It connects a series of data points with a line. A dot is placed for each closing price and the various dots are then connected by a line.

Chart credits: Money control

Above is example of Line chart. Major advantage of this chart is that it is very simple to understand and is very useful for beginners. For example above charts shows the downward trend.

BAR CHART

Bar chart is the little advanced version it shows Highest price stock reached in the given time frame, Lowest price reached, closing price and opening price.

bar can be better explained by the following diagram:

      Chart credits: Money control

Above is the example of Bar chart.

Next is the most important chart that is candle chart or Japanese candle chart. This we will be giving in details in our next article.

Guys if you have any query regarding any article you can comment us.



What is candle chart or Japanese candle chart

Ok so in previous blog we talked about different types of charts we use in Technical analysis, if you have visited this website for the first time then you can go to "Different types of charts used for Technical analysis" for it.

So Candle chart or Japanese candle chart as the name indicates was first developed by Munehisa Homma, a Japanese rice trader of Financial instrument. 

The daily candlestick line contains the market's open, high, low and close of a specific day. Candlesticks are usually composed of the body (black / white or green / red), and an upper and a lower shadow. Shadows are also known as wicks of the candle. The area between the open and the close is called the real body, price excursions above and below the real body are shadows. The wick illustrates the highest and lowest traded prices of a security during the time interval represented. The body illustrates the opening and closing trades. This real body represents the range between the open and close of that day's trading. When the real body is filled in or black (or in red color), it means the close was lower than the open. If the real body is empty (or in green color), it means the opposite: the close was higher than the open.

Candle when forms looks like:

Further Candles can be of different period hourly, daily, monthly etc.

Different candles forms different shapes which helps a trader to identify the future movements and make profit out of it.

An example of four hours candle stick chart is :

Courtesy: Money Control

Hope you all like the article; if you have any other doubt related to charts please ask us in comment box.