A Comprehensive Guide on Technical Analysis

Technical analysis is one of the most important aspects of stock trading. To be successful, you need to know how to read charts and use indicators to make informed decisions. The technical analysis consists of all this and a little more. 

Traders can either do fundamental analysis or technical analysis to study the price movements in any financial instrument.

The fundamental analysis measures a security’s intrinsic value, while technical analysts look at stock charts to identify patterns that might suggest where the price is headed. 

While technical analysis is not limited to stock charts. It can also be used to study trends in other markets, such as the foreign exchange or bond market. Technical analysts may use various tools, including Fibonacci retracements and moving averages, to help them predict future price movements.

In this blog, we will cover some of the basics of technical analysis to understand how to use it to improve your trading skills. 

What is Technical Analysis?

Technical analysis is the study of past trading data to predict future movements. Technical traders use this information to make educated guesses about when to buy or sell a security. This can help investors estimate how much their investments are worth.

There are 2 types of technical analysis – manual, where somebody looks at graphs and figures to decide when it’s time.

The other type is automated, which means telling the software what you want to look out for on your behalf.

Technical analysts use technical tools and indicators for forecasting price movements which we will explain in this blog in detail.

After having understood the concept, let us now understand why technical analysis holds importance to making informed market decisions.

Why is Technical Analysis important for traders?

Let us discuss why is it important for traders to do technical analysis before placing a buy or sell order-

1. Trend analysis – Trend analysis helps traders to understand whether the market is uptrend, downtrend or sideways.
2. Identify Price Patterns- Traders can easily set price targets and stop-losses after identifying price patterns.
3. Market Psychology- Market Psychology helps to understand the sentiments of the traders in the stock market.
4. Risk Management Techniques- Risk Management Techniques help reduce losses if the price direction reverses.

What are the objectives of  Technical analysis?

• When analysing investments, professional traders use various methods to make informed decisions. 
• Technical analysis of stocks is just one way to gather information about the market and its potential outcomes for future trading opportunities or trades on specific currencies. 
• It is a method of predicting future price movements by analysing past trading data. This can be applied to any type of asset, including stocks, futures, commodities, fixed-income securities, currencies, etc.
•  It is most commonly used in the commodity and forex markets, where traders focus on short-term price fluctuations for potential profits.
• In addition, technical analysis is commonly used to track price changes, but some analysts also use it to track trading volume and open interest figures.

Before understanding any form of analysis, we must understand its ground rules. The basis of technical analysis is Dow Theory, which we will understand now. 

What is Dow Theory in Technical Analysis?

It is a trading approach developed by Charles Dow, also known as the father of Technical Analysis. It is still the basis of the technical analysis of financial markets. The basic idea of Dow Theory is that market price action reflects all available information, and the market price movement is comprised of three main trends.

Most modern-day technical analysis theory originates from ideas proposed by Dow and his partner Edward Jones back in the 19th century. Those ideas were published in the Wall Street Journal and are still assimilated by most technicians. Dow Theory still dominates the far more sophisticated and equipped modern study of technical analysis.

What are the six basic tenets of Dow Theory?

Six core principles or tenets make up the Dow Theory, which explains how the stock market fluctuates. Today’s technical analysis is so dependent on this financial theory. Actually, concepts like uptrends, downtrends, support levels, and resistance levels were all based on the Dow Theory. 

These six tenets of the Dow Theory are widely used by all traders in the stock market. 

What are the Three Key Terms Used in Technical Analysis?

Let us understand the three important things that every trader must analyse when doing technical analysis:

1. Price- Price is the first and foremost consideration for any exchange instrument. An agreement between sellers and buyers led to the current price.
2. Volume- Volume helps us understand whether the buyers or sellers are active in the particular stock.
3. Time frames- Most exchange charts depict a price change specifically over time. The time is typically located in the horizontal chart axis. A chart period or time frame is one-time scale mark.

What is the Correlation between Price, Volume & Time?

Below let us understand the  correlation between price, volume and time:

Price and volume data

Volume is basically the total number of buyers and sellers exchanging shares over a particular period of time, usually a day.

The share is more active when the volume is high. The data on the volume of a share is readily available on the charts or the trading screen. Most financial sites have data on the volume.

For Example:

If the volume of the stock for the day was 1,500,000 shares, it means that 1,500,000 shares were sold by someone, and someone bought those shares on that day.

Volume may not be an attractive piece of information, but you should combine the volume data with resistance and support levels to get a clear picture.

What are the basic guidelines for using Volume?

When we analyze volume in trading, there are some guidelines which we can use to determine the weakness or strengths of a move. The below guidelines are not true in all situations, but they help in trading decisions:

Now, let us understand the correlation between volume and market interest-

Volume and Market Interest

A rising market should have rising volume. Buyers should be increasing to keep the prices moving high.

Increasing prices and decreasing volume are warnings of a potential reversal. A price rise or decrease on little volume is not a strong signal, whereas a price rise or decrease on a large volume is a strong signal.

Volume and Reversals

Volume plays an important role in identifying reversals signs. When the volume decreases and prices are also falling, then it generates a bullish signal, and similarly, when the volume decreases when the prices are rising, then it indicates bearish signals.

Breakouts vs False Breakouts

On the initial breakout from the range or chart pattern, a rise in the volume indicates strength in the move. Little change or decline in volume on a breakout indicates a false breakout.

Why is Volume in Trading Important?

As discussed above, volume is used by technical analysts to confirm trends and chart patterns. The strength of any price movement is measured mainly by volume.

1. Volume and Chart Patterns

Volume plays a significant role when confirming chart patterns, like triangles, head and shoulders, flags, etc. The trading signal isn’t unreliable if the book isn’t present with these chart patterns.

2. Volume precedes price

Technical Analysts closely analyze the volume to see when reversals are about to occur. If the book is decreasing in an uptrend, then it can signal that reversal may take place soon.

A. Trend Analysis 

To analyse the technical charts, we need to analyse the stock trends and support and resistance levels. Let us discuss in detail:

What are stock market trends?

Stock Trends tell us the overall direction of the stock’s prices or the market as a whole.

In technical analysis, trends can be analyzed by using trendlines or price action, which tells us when the price is making higher highs for an uptrend, or lower lows for a downtrend.

Many traders try to trade in the same direction as the ongoing trend, whereas some contrarians trade against the trend.

The trends can be categorized into uptrends, downtrends, and sideways, which occur in all types of markets, such as stocks, bonds, and futures.

What are the Types of Stock Trends?

Stock Trends can be divided into-

a. Uptrend

When the prices are making higher highs and higher lows, then the trend can be termed an Uptrend. Generally, when the psychological and fundamental factors improve, the prices start moving up and form an Upward Trend.

When the stock or market is on an uptrend, then it is termed a “Bull market”. Traders should buy dips during this ongoing Uptrend.

b. Downtrend

When the prices are making lower lows and lower highs, the trend can be termed the Downtrend. Generally, when the psychological and fundamental factors degrade, the prices start moving down and form the Downtrend.

When the stock market is on a downtrend, then it is termed a “Bear market”. Traders should sell dips during this ongoing Downtrend.

c. Sideways

The horizontal price movement happens when the supply and demand are almost equal. Then the trend is termed as “Sideways trend”. A sideways trend happens when neither psychological factors nor fundamental factors tend to. This trend may last for a few weeks or a few years.

After analysing whether the market is in an uptrend, downtrend or sideways trend, we need to analyse the support and resistance levels-

What are the Support and Resistance levels in Technical Analysis?

Support is an area where the prices of any asset tend to stop falling. 

Resistance is an area where the prices of any type of asset tend to stop rising.

But knowing just these definitions will not help you in your trading. 

Traders need more information than these definitions for making trading decisions based on support and resistance.

Here, one needs to understand how the prices of particular assets move to interpret support and resistance levels. 

There are two types of support and resistance levels – the minor and major support and resistance levels. 

The minor level can be broken, whereas the major one may stop the prices from moving in the ongoing direction and cause trend reversals.

Minor levels don’t hold the prices. Suppose in the uptrend, the price will be making higher high suddenly there will be a little pullback, and then it will continue to make higher highs.

This pullback can be considered a minor support area as the price bounced back from 

that area. These areas of minor support and resistance provide opportunities for increasing your holding. 

Major levels are those areas that create trend reversals. When the prices are making higher highs and are in an uptrend, then reversed into a downtrend, the area where the reversal took place can be considered a major resistance level.

B. Identify Price Patterns 

Traders can identify price patterns using technical tools-

What are Technical Tools used by the Traders?

Let us discuss technical tools used by traders while doing technical analysis. Technical tools help in forecasting the price movements of specific stocks.

 Technical tools include

• Chart Patterns
• Price Gaps 
• Candlesticks.

Firstly let us discuss what chart patterns are:

What are chart patterns?

Chart patterns put all buying and selling happening in the stock market into a concise picture. It provides a complete picture of all trading and a framework for analysing the battle between bulls and bears.

Chart patterns can help us determine who is winning the battle and also allow traders to position themselves accordingly. Chart pattern analysis can be used to make short-term and long-term forecasts.

The data used by the chart patterns can be intraday, daily, weekly, monthly or yearly. Gaps and reversals may form in one trading session, while broadening tops and dormant bottoms may require many months to form.

Why is it Important to analyse the Chart Patterns?

Chart patterns are a great way of viewing price actions during the stock trading period.

Chart patterns tend to repeat themselves over and over again which helps to appeal to human psychology and trader psychology in particular.

If you are able to learn to recognize these patterns early they will help you to gain a real competitive advantage in the markets.

Just as volume, support and resistance levels, RSI,  Fibonacci Retracements and other technical indicators, stock chart patterns help in identifying trend reversals and continuations.

Types of Chart Patterns

Chart patterns can be basically classified into

• Continuation patterns: These kinds of chart patterns give continuation signals of the ongoing trend
• Reversal Patterns: These kinds of chart patterns give reversal signals
• Bilateral Patterns: These kinds of chart patterns show uncertainty and high volatility in the market.

Here are the 10 most useful charts patterns which will help you in trading:

1. Head and Shoulders

This is a bullish and bearish reversal pattern which has a large peak in the middle and smaller peaks on either side.

Head and shoulders chart pattern is considered to be one of the most reliable reversal chart patterns.

This pattern is formed when the prices of the stock rise to a peak and fall down to the same level from where it had started rising.

Again the prices rise and form a peak higher than the last peak, and again it declines to the original base.

Prices again rise to form a third peak, which is lower than the second peak and from here it starts declining to the base level.

When the prices break the baseline with volume then a bearish reversal takes place.

2. Double Top

A double top chart pattern is another bearish reversal pattern that traders use a lot.

The stock price will form a peak and then retrace back to a level of support. It will then form a peak once more before reversing back from the prevailing trend.

3. Double Bottom

A double bottom chart pattern is a bullish reversal pattern that is totally opposite of a double top.

The stock price will form a peak and then retrace back to a level of resistance. It will then form a peak once more before reversing back from the prevailing trend.

4. Cup and Handle

A cup and handle chart pattern is a bullish reversal chart pattern which resembles a cup and handle where the cup is in the shape of a “U” and the handle has a slight downward drift.

The cup appears similar to a rounding bottom chart pattern, and the handle is similar to a wedge pattern.

The right-hand side of the pattern has a low trading volume that may be as short as seven weeks or as long as 65 weeks.

5. Rounding Bottom

This chart pattern is also known as the “saucer bottom” and is a long-term reversal chart pattern. Rounding Bottom shows that the stock is reversing from a downward trend towards an upward trend.

It can take any time from several months to years to form. It is very similar to the cup and handle, but the only difference is that there is no handle to the pattern.

6. Wedges

Wedges are bullish and bearish reversals as well as continuation patterns which are formed by joining two trend lines which converge. It can be a rising wedge or a falling wedge.

A rising wedge occurs when the price of the stock is rising over time whereas a falling wedge occurs when the price of the stock is falling over time.

Wedge chart pattern can be drawn by using trend lines and connecting the peaks and the troughs.

Once there is a price breakout, there is a sharp movement of prices in either of the directions.

7. Pennants

A pennant pattern or a flag pattern is created when there is a sharp movement in the stock either upward or downward.

This is followed by a period of consolidation that creates the pennant shape because of the converging lines.

Then a breakout movement occurs in the same direction as the big stock move. Pennant chart patterns are similar to flag patterns and tend to last between one and three weeks.

At the initial stock movement, there is a significant volume which is followed by weaker volume in the pennant section and then a rise in the volume at the breakout.

8. Symmetrical Triangles

Symmetrical Triangles can be bullish or bearish continuation chart patterns that are developed by two trend lines which converge.

These two trend lines join the peaks and troughs and they occur in the direction of the ongoing trend.

9. Ascending Triangles

This triangle appears during an upward trend and is regarded as a bullish continuation pattern.

Sometimes it can be also created at the end of a downward trend as a reversal pattern, but it is more commonly considered as a continuation chart pattern.

Ascending triangles are always regarded as bullish patterns whenever they are formed in the charts.

10. Descending Triangles

Just like the ascending triangle, the descending triangle is also a continuation chart pattern. The only difference is that it is a bearish continuation pattern and it is created during the downtrend.

Sometimes it can be also created at the end of an uptrend as a reversal pattern, but it is more commonly considered as a continuation chart pattern.

Use StockEdge Chart Patterns Scans to filter out stocks forming the above chart patterns.

Other than chart patterns, one should also analyze the gaps, which we will discuss in the next section:

What is Price Gap Theory?

Have you ever noticed a break between the previous day’s opening and closing price of the last day?

If yes, the break between these two trading sessions is known as the Price Gap.

Gaps are common price patterns used as trading strategies by both day and positional traders.

What is a Gap?

A gap is formed when the previous day’s closing price and the next day’s opening price have different price levels.

This is formed mainly due to any news in that specific stock after the trading session.

For example, if the company’s earnings are higher than expected, the stock will gap up the next day.

4 Types of Price Gaps

Gaps can be mainly classified into 4 groups:

Now let us discuss about candlestick patterns-

What are Candlestick Patterns?

Candlestick charts show that emotion by visually representing the size of price moves with different colors. 

The candlesticks are used by traders to make trading decisions based on recurring patterns that aid in predicting the near-term direction of the price.

Price changes that go up and down produce candlesticks. While these price changes can occasionally seem random, they can also develop patterns that traders can use for analysis or trading.

There are many types of candlestick patterns which are mainly categorized into:

• Continuation Patterns-These  candlestick patterns indicate that the ongoing downtrend or uptrend is going to continue.
• Bullish Reversal Patterns-Bullish Reversal candlestick patterns indicate that the ongoing downtrend is going to reverse to an uptrend.
• Bearish Reversal Patterns-Bearish Reversal candlestick patterns indicate that the ongoing uptrend is going to reverse to a downtrend.

You can also learn about Candlestick Patterns with our online course.

After discussing the technical tools, lets us what are technical indicators and oscillators in technical analysis-

What are Technical Indicators and Oscillators?

Technical indicators are heuristic or pattern-based signals generated by a security’s or contract’s price, volume and open interest used by traders who employ technical analysis.

Technical analysts use indicators to forecast future price movements by analysing historical data.

Some technical indicators generate signals independently, while others work in tandem. They are used in technical analysis to assess a security’s strength or weakness by focusing on trading signals, patterns, price movements, and other analytical charting tools. 

Although there are non-specific market technical indicators, some technical indicators are intended to be used for a specific financial market.

Types of Technical Indicators

Technical Indicators can be divided into-

1. Momentum Indicators 
2. Trend Indicators 
3. Volume Indicators
4. Volatility Indicators
5. Breadth Indicators

So, let us discuss these indicators in detail:

A. Momentum Indicators

Momentum indicators are tools traders use to understand better how quickly or slowly the price of security changes. Momentum indicators should be used with other indicators and tools because they do not identify the direction of movement but only the timeframe in which the price change occurs.

Momentum indicators help the traders to understand the speed at which the price of certain stocks changes. In addition, these indicators help us understand the strength of price movements.

Sometimes the stock prices fall fast, but at other times they might fall slow. We can analyse the speed of the fall or rise in particular stocks by using the momentum indicators.

Below are some of the popular momentum indicators which help traders in gauging the speed of the prices:

1. Moving Average Convergence Divergence (MACD)

Moving Average Convergence Divergence (MACD) is a momentum indicator which shows the relationship between the two moving averages, i.e. 26 EMA and 12 EMA.

It consists of the MACD line and the signal line. The MACD line differs between the 26 EMA and 12 EMA, and the signal line is 9 EMA.

The buying signal is generated by MACD when the MACD line crosses the signal line from below, and the selling signal is generated when the MACD line crosses the signal line from above, as shown below:

MACD also generates the buy and sell signals by bullish and bearish divergences.

2. Relative Strength Index 

The Relative Strength Index (RSI) is another popular momentum indicator that acts as a metric for price changes and the speed at which they change for a particular period.

The indicator oscillates between zero and 100. 

Signals can be spotted by traders when they look for divergences and when the indicator crosses over the centreline, which is 50. When RSI crosses above 50 signals positive and uptrend momentum; though, if the RSI hits 70 or above, it indicates overbought conditions.

On the other hand, RSI readings that cross below 50 show negative and downtrend momentum. If RSI is below 30, though, it indicates oversold conditions.

3. Average Directional Index (ADX)

The Average Directional Index (ADX) created by Welles Wilder established the Directional Movement System, which consists of the ADX, the Minus Directional Indicator (-DI), and the Plus Directional Indicator (+DI).

These indicators as a group are used to help measure both the momentum and the direction of price movements.

Traders should note that the ADX values of 20 or higher indicate that the market is trending, and for any reading less than 20, the market is viewed as “directionless” or consolidated.

4. Rate of Change

The rate of change is the speed at which the price changes over time. 

This indicator is expressed as a ratio between a change in one variable relative to another. A stock with high momentum has a positive ROC, whereas a low-momentum stock has a negative ROC and is likely to decline in value, indicating a sell signal.

The divergence between the prices and indicators also generates the buy and sell signals.

5. Stochastic

Traders use the stochastic momentum indicator to compare the current closing price of a stock over a particular period.

It tracks the momentum and speed of the market and does not consider volume and price.

Stochastics help in identifying the overbought and oversold zones and oscillates in the range of 0 and 100. When this indicator is above 80, it is considered an overbought zone; when it is below 20, it shows an oversold zone.

6. Relative Strength 

Relative strength refers to the measurement of the stock’s performance as compared to its benchmark or another stock. RS compares the performance of stock “X” vs “Y”, measured over a period. For example, “X” may increase more or less than “Y” in a rising market, or “X” may fall more or less as compared to “Y” in a falling market. It is one of the tools for momentum investing.

This measure helps us identify the strongest and the weakest securities or asset classes within the financial market. 

Usually, stocks that display strong or weak RS over a given period tend to continue. One should note that RS analysis can be applied to domestic or international stocks, stock indexes, fixed-income indexes, currencies, commodities, and other asset classes.

B. Trend Indicators

Traders who follow trend trading enter a long position when the stock is trending upward. Whereas trend traders enter a short position when an asset is trending downward.0

Trend traders gain profit from trading with the trends. This trend trading method captures profits through the stock momentum analysis in a particular direction.

Trend indicators help traders analyse whether the trends will continue or reverse. Although no single technical indicator will help you gain profits, traders also need well-defined risk management and trading psychology.

7. Moving Averages

Moving average is a trend indicator that smooths out price data constantly by making average prices. On a price chart, a moving average is a flat line that reduces variations because of random price fluctuations.

The average can be of any period– say 10 days, 30 minutes, one week, or any other period the trader chooses. The 200-day, 100-day, and 50-day simple moving averages are popular for long-term trend traders.

There are many ways to trade with the moving average:

• First, traders can analyse the angle of the moving average. If it is mostly moving horizontally, then the price ranges.
• If the moving average line angles up, the current trend is an uptrend. However, moving averages don’t predict a stock’s future value; they just reveal what the price is doing over time.
• Crossovers are another way of analysing the moving averages. Traders can plot a 200-day and 50-day moving average on the chart. A buy signal occurs when the 50-day moves above the 200-day. A sell signal occurs when the 50-day drops below the 200-day, as shown below

8. Supertrend

As the name suggests, Supertrend is a trend indicator and indicates that the direction of the price movement in a market is trending,

A super-trend indicator is plotted either above or below the closing price. The indicator changes colour based on the change in the direction of the trend.

If the super-trend indicator moves below the closing price, then the indicator turns green and gives a buy signal. Conversely, if a super-trend closes above, the indicator shows a sell signal in red.

9. Parabolic SAR

Parabolic SAR is another famous trend indicator highlighting the direction a security is moving. The indicator looks like a series of dots placed above or below a chart’s price bars.

A dot below the price indicates a bullish signal, and a dot above the price shows that the bears are in control and that the momentum may remain downward.

When the dots reverse, it indicates that a potential price direction change will occur.

One can also use Relative Strength Indicators and MACD as trend indicators besides the above trend indicators.

C. Volume Indicators

Volume indicator analysis is an essential technical parameter that traders, especially novice traders, ignore. Yet, volume is important in technical analysis that helps confirm trends and patterns.

It also indicates how many stocks were bought and sold in the market at a given period. Again, this helps us in gauging how other traders perceive the market.

One of the main benefits of volume is that it leads to the stock’s price movement, i.e., it gives us early signals when the price movement will continue or reverse. Hence volume indicators are helpful measures for a trader.

10. On-Balance indicator

On Balance Volume (OBV) is the volume indicator that calculates the buying and selling pressure as a cumulative indicator which sums up the volume on up days and subtracts volume on down days.

The day’s volume is considered up-volume when the stock closes higher than the previous close. Similarly, the day’s volume is considered down-volume when the stock closes lower than the previous close. Rather than the value, one should focus on its direction.

• When both prices, as well as OBV, are making higher peaks and higher troughs, then the upward trend is likely to continue, as shown below:
• When both prices, as well as OBV, are making lower peaks and lower troughs, then the downward trend is likely to continue, as shown below:
• When price continues to make higher peaks, but OBV makes lower peaks, the upward trend is likely to fail, known as negative divergence.
• When the price continues to make lower troughs, and OBV makes higher troughs, the downward trend will fail, known as positive divergence.

This indicator is calculated by adding the day’s volume to a cumulative total when the security’s price closes up and subtracting the day’s volume when the security’s price closes down.

After discussing the technical tools and indicators, let us discuss how one can develop trading strategies:

What are Trading Strategies in Technical Analysis?

There are many types of trading strategies that one can use according to their trading style. Developing strategies for buying or selling stocks, bonds, ETFs, or other investments is part of trading planning. Strategies may also be developed for more complicated trades like options or futures.

Trading strategies come in a wide variety, but they are typically based on either technical analysis or fundamental analysis. The two have in common the use of quantifiable data that can be tested for accuracy in the past. 

Technical indicators are used by technical trading strategies to produce trading signals. Technical traders contend that a security’s price contains all relevant information and moves in predictable patterns.

For example-  Moving average crossover is a straightforward trading strategy in which a short-term moving average crosses above or below a long-term moving average.

While technical chart patterns are indicators are important in technical analysis, it is also important to understand market psychology and risk management in technical analysis-

C.  Market Psychology

What is Market Psychology?

Although trading can be profitable and exciting, it can also be mentally and emotionally challenging. Many traders, especially novice traders, find it difficult to control their emotions and keep a focused mindset, which results in bad choices and loss in the stock market

Understanding and controlling your emotions, biases, and mindset can make all the difference in your ability to trade successfully. This is where trading psychology comes in.

D. Risk Management

How to do Risk Management and Place Stop Loss Orders?

Losses are reduced through risk management. Additionally, it can prevent traders’ accounts from losing their funds. When traders lose money, there is a risk. Traders have the potential to profit in the market if they can manage their risk.

It is a crucial but frequently disregarded requirement for effective active trading. After all, without a sound risk management plan, a trader who has made sizable profits could lose it all in just one or two bad trades. 

It’s important to understand basic concepts like trailing stop loss to make the transition into trading easier. To protect profits, trailing stop losses combine risk management and trading strategies. However, inexperienced traders frequently abuse the tool, leading to restrictions.

While trailing stops can reduce risk, they can also limit the amount of money that can be made. They should be considered a risk management tactic, but remember that they could limit profit potential.

When trading on a financial instrument, traders can set a predetermined loss percentage using a trailing stop loss. Effectively managing risks and protecting profits are two things it does. These are, therefore, also referred to as profit-protecting stops. The stop price changes accordingly as the price of a financial instrument increases or decreases.

A stop price order is set at a fixed distance below the market price of a financial instrument when an investor takes an extended position. It limits the number of losses a trader may sustain

You can also do our course on Multi-Asset Trading Mentorship Program

Thus, we understood how traders can do trend analysis, analysis price patterns, risk management and understand market psychology in the stock market using technical analysis.

Conclusion

To wrap it up, technical analysis is a valuable tool for predicting future price movements in the market. Understanding and using some of the most common technical indicators enables you to make informed decisions about when to buy and sell currency pairs. While there is no guaranteed way to make profits in the market, applying technical analysis can give you an edge in your trading.

The article introduced you to the concept of technical analysis and its main benefits, how to make it, and the differences between it and fundamental analysis. 

The information above is fundamental for any trader to know before using technical analysis in practice. So take your time to learn and use the knowledge in practice to succeed in the stock market.

And also if you wish to level up and sharpen your skills, join our advanced technical analysis course now!

Frequently Asked Questions(FAQs)

What are the 4 basics of technical analysis?

The four main principles of technical analysis are-

• 1. Market moves in summation of three trends
• 2. Market trends have three phases
• 3. All news is discounted in the stock market
• 4. Averages must confirm

What are the 2 types of technical analysis?

Chart patterns and technical indicators are the two main categories of technical analysis. Technical analysts use chart patterns, a form of subjective technical analysis, to try and pinpoint areas of support and resistance on a chart.

What is technical analysis?

Technical analysis is one of the most important aspects of stock trading. To be successful, you need to know how to read charts and use indicators to make informed decisions. The technical analysis consists of all this and a little more. 

What is a technical analysis tool?

Technical tools assist investors in analysing moving averages, volumes, and price trends to forecast the intrinsic value of their target asset in the future.

How do I learn technical analysis?

The best way to learn technical analysis is to thoroughly comprehend its fundamental ideas before applying them through backtesting or paper trading. Nowadays there are many courses on technical analysis through which traders can learn about this subject.