Understanding technical analysis
Technical analysis is an indicator of the price movement. Technical analysis does not predict the future price. A technical analyst is not an astrologer who can predict the future price. He is an expert in reading the chart. Technical analyst explains the direction of the price movement.
A professional course in technical analysis may help in understanding of the chart. But you learn technical analysis only with experience and feel the cyclical changes in the stock market as you trade. It is a time-consuming process and needs lot of willpower and hard work.
If a person is trained in technical analysis can he immune himself from losses? If an investor has acquired professional training in technical analysis to what extent can he be accurate in earning profits.
At the time of stock selection, it is imperative to understand the technical chart. Proper technical analysis helps the investor in picking up the right stock. Technical analysis is not a science but an art.
It cannot be taught but it can be learnt. Sounds ironical isn't it… Understanding of technical analysis depends on the caliber of the learner rather than capability or efficiency of the teacher. A professional trainer can only be a guide in showing the way or direction.
Every investor aims at making profit in all his trades. The goal of making profit in all the trades itself is wrong. Every investor should understand that if he has picked up 10 trades, he will make profit in six and may lose in four trades.
The investor needs to understand that he needs to continue to ride on the stocks which fetch him profits and exit from the stocks in which he has a loss. After calculated effort of studying the charts every investor's desire is to earn profit.
Since market is like any other business there will be loss in this too. No business is immune to loss and so is stock market. Loss is an integral part of this stock market. Time frame is another important concept in technical analysis of the chart.
A person interested in intraday trading is supposed to look at a minute chart. Weekly chart does not catch minor movements in the price of the stocks whereas minute charts help a lot. If your time horizon of investment is a little long, then technical analysis of the daily chart helps you.
Candlestick charts are the most widely used charts by technical analysts. Technical analysis of candle charts help investor in his decision to buy or sell stock.
With the help of technical analysis, we can plan the risk reward ratio. On an average, every investor's aim should be to earn risk reward ratio of 1:3. This is the minimum target because even if the investor sells at the bought price, he needs to pay the brokerage charges.
But at times it does happen that despite a careful in-depth technical analysis also sometimes we end up in a loss.
(The author is a homemaker who dabbles in stock market investments in free time)