Question

Do you think technical analysis is necessary for INVESTMENT if yes why, Explain? How do you differentiate it with fundamental analysis? How does technical analysis help an Investor in making Investments? Explain briefly the charting techniques and types of formations made in technical analysis providing necessary help to investor with the help of live examples.

Answer 1

Technical Analysis is the analysis technique where the statistical methods and tools are used for predicting the trend of a stock. It takes into account the historical data available on various sites. The Opening price of the stock, closing price and the price for which the stock was trading is taken into consideration. The movement of price is determined using either the historical data or the charts which are prepared using the data itself. The chart prepared is visual representation and helps in determining easily the trend of price and volume movement. While investing, technical analysis shows the past trends that have been occured and on the basis of that past movement the future price movement is predicted which is helpful in determining whether to invest or not.  

While doing analysis, there are two types of analysis that the analysts perform- Fundamental analysis and technical analysis. Fundamental analysis takes into account the financial and non financial data of the company and makes prediction on the basis of ratios and other parameters. It predicts the growth potential of the company. Technical analysis take into account the historical price movement of the stock and on the basis of that, the prediction is made whether the price of the stock will move upwards or downwards. It takes into account the price and volume for future prediction.

Technical analysis takes into account the price and volume movements of the company which predicts the price movement on the basis of statistical tools that are used in analysis. This helps the investors know the difference between the worth of asset and the market value of that asset. It takes into account the historical data which is helpful in determining the movement of price of the stock. It is helpful for the investors in knowing the movement of stock price (just and idea).

The charts which are prepared during the technical analysis helps the investor in knowing the pattern of stock and is a visual representation which help in predicting the movement of stock just by seeing the chart. The charts which are prepared in technical analysis are Line chart, Bar chart, candlestick chart and the Heikin- Ashi candle chart.

Line chart: It is most basic type of chart that is prepared in technical analysis that depicts the closing prices of the day to day transactions. Below is the line chart of the stock SBIN.

Bar chart: The bar chart in technical analysis is used to show the price movement of stock over a particular time frame. It shows the Open, High, Low, Close (OHLC) in a stock.

Candlestick Chart: It is a japanese method of showing the price of stock over a certain time frame. This method is very much used all over the world as it clearly shows the picture of price movement of stock from Open, High, Low, Close (OHLC). Each time period is signified as candle or Doji.

Hieken -Ashi Candle: This is mostly like the candle stick chart, only difference being that is reduces the market noise.