Technical Analysis

MM Nakrani

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About this app

Technical analysis: In finance, technical analysis is an analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume.

➡️ Technical Analysis helps identify trading opportunities using actions of Market Participants through charts, patterns, and indicators.

✅ Application on asset types
One of the greatest versatile features of technical analysis is the fact you can apply TA on any asset class as long as the asset type has historical time series data. Time series data in technical analysis context is the price variables’ information, namely – open high, low, close, volume, etc.

Here is an analogy that may help. Think about learning how to drive a car. Once you learn how to drive a car, you can literally drive any car. Likewise, you only need to learn technical analysis once. Once you do so, you can apply TA’s concept on any asset class – equities, commodities, foreign exchange, fixed income, etc.

This is probably one of the biggest advantages of TA compared to the other fields of study. For example, one has to study the profit and loss, balance sheet, and cash flow statements when it comes to fundamental analysis of equity. However, fundamental analysis of commodities is completely different.

If you are dealing with an agricultural commodity like Coffee or Pepper, then the fundamental analysis includes analyzing rainfall, harvest, demand, supply, inventory etc. However, the fundamentals of metal commodities are different, so it is for energy commodities. So every time you choose a commodity, the fundamentals change.

Anyhow, the concept of technical analysis will remain the same irrespective of the asset you are studying. For example, an indicator such as ‘Moving average convergence divergence’ (MACD) or ‘Relative strength index’ (RSI) is used the same way on equity, commodity or currency.

• Key takeaways
1) Its scope does not bind technical Analysis. The TA concepts can be applied across any asset classes as long as it has a time-series data.

2) TA is based on a few core assumptions.
1) Markets discount everything
2) The how is more important than why
3) Price moves in trends
4) History tends to repeat itself.

3)A good way to summarize the daily trading action is by marking the open, high, low and close prices usually abbreviated as OHLC

👉 What is technical analysis?

Technical analysis is a means of examining and predicting price movements in the financial markets, by using historical price charts and market statistics. It is based on the idea that if a trader can identify previous market patterns, they can form a fairly accurate prediction of future price trajectories.

It is one of the two major schools of market analysis, the other being fundamental analysis. Whereas fundamental analysis focuses on an asset’s ‘true value’, with the meaning of external factors and intrinsic value both considered, technical analysis is based purely on the price charts of an asset. It is solely the identification of patterns on a chart that is used to predict future movements.

➡️ Examples of technical analysis tools:

Technical analysts have a wide range of tools that they can use to find trends and patterns on charts. These include moving averages, support and resistance levels, Bollinger bands, and more. All of the tools have the same purpose: to make understanding chart movements and identifying trends easier for technical traders.

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