Technical Analysis in Trading
In this article, I am going to discuss Technical Analysis in Trading. Please read our previous article, where we discussed BTST Trading Strategy (Buy Today Sell Tomorrow) in detail. At the end of this article, you will understand the following pointers.
- What is Technical Analysis in Trading?
- The basic assumption of Technical Analysis
- Rules for trend
- Application of Technical Analysis
What is Technical Analysis in Trading?
Technical analysis is the study of past market price action to try to gauge what the market might do in the future.
Technical Analysis – Assumptions
The 3 basic assumptions of technical analysis
- History repeats itself.
- Prices move in trends.
- Market Action discounts everything
History repeats itself.
It states that human behavior will not change and commit to similar things repeatedly. This means chart patterns in technical analysis have been used for more than 100 years, and they are still believed to be relevant and often repeat themselves. Technical analysis is the study of past market price action to try to gauge what the market might do in the future.
Prices move in trends
Newton’s first law of Motion state that “An object at rest remains at rest, or if in motion, remains in motion at a constant velocity unless acted on by an external force. So, in the same way, we assume that a trend remains in force till we don’t see a trend reversal price action that has enough force to change or stop it.
3 RULES FOR TREND
- We expect an up or downtrend to continue in its current state until the next support /resistance or unless displaying evidence of weakness within the trend.
- A sideways trend within the framework is expected to continue in its current state
- If strength is shown on an approach to a support or resistance, we expect a breakout
Let’s apply this to the nifty 50 Charts. Price in uptrend making higher high (HH) and a higher low (HL)
Market Action discounts everything
All known and unknown information related to security is reflected in the price of the stock. Prices represent the sum total of all the greed, hopes, fears, and Including fundamental or any major event. As soon as new information comes to light it’s immediately reflected in the stock’s price
Applications of technical analysis
- Technical analysis can be used in stocks, indices, futures, commodities, or any tradable instrument where the price is influenced by the forces of supply and demand.
- Technical analysis may not work with micro-cap companies and penny stocks which are controlled and operated by a handful of operators
Next MARKET STRUCTURE
We will discuss
- What is the Market Structure?
- Principles of Market Structure
- Elements of the Market structure
In this article, I am going to discuss Market Structure in Trading. Here, in this article, I try to explain Technical Analysis in Trading. I hope you enjoy this Technical Analysis in the Trading article. Please join my Telegram Channel and YouTube Channel as well as my Facebook Group to learn more and clear your doubts.
About the Author: Pranaya Rout
Pranaya Rout has published more than 3,000 articles in his 11-year career. Pranaya Rout has very good experience with Microsoft Technologies, Including C#, VB, ASP.NET MVC, ASP.NET Web API, EF, EF Core, ADO.NET, LINQ, SQL Server, MYSQL, Oracle, ASP.NET Core, Cloud Computing, Microservices, Design Patterns and still learning new technologies.