Correct information about the market and the stocks and shares you want to invest in is crucial for you to make the right investment decision. Market research and study of potential investment channels and their prospects must be conducted before investing capital. In stock market investing, technical analysis is crucial. It is one of the sources of valuable information for projecting future price action of securities.

There are specific methods and strategies to perform technical analysis that involve various details regarding the stocks or shares. How is technical analysis done? Why is it necessary for your stock market investment? Explore and understand the answers with this article and trade with confidence.

Elaborating Technical Analysis

Technical analysis is an assessment method that predicts the direction of asset prices by studying past market information, mainly price and volume. It determines a security value by considering its sales and earnings.

The concept of technical analysis is that the past information regarding trading activity and price movements contains recognisable patterns and is a valuable predictor of future performance. It can measure how the demand and supply for a given security can affect its volume, price, and implied volatility swings. The historical data, in combination with respective investment criteria, can identify existing patterns, signals, and trends, further estimating probable market fluctuations.

Technical Analysis Methods

Diverse methods of technical analysis exist in the market, including:

Trend Analysis: This method identifies and examines trends noticed in the price movements.
Support and Resistance: Traders identify significant price levels where a stock usually stops falling (support) or is unable to advance (resistance). These levels help decide effective entry and exit points.
Bollinger Bands: The bands help traders gauge market volatility and signal possible price reversals. They include a moving average, for which the upper and lower bands are the standard deviations.
Candlestick Patterns: Candlestick charts depict price action graphically. Traders estimate possible reversals by analysing doji, hammer, and engulfing patterns.
Fibonacci Retracement: This technique determines the potential support and resistance levels based on the Fibonacci ratios. Traders utilise retracement levels to identify possible price fluctuations.
Volume Analysis: This technical analysis method tracks changes in volumes to identify potential price movements.
Chart Patterns: Chart patterns give visuals to price charts, indicating potential future price movements.
Parabolic SAR: It can assist in determining the potential stop and reversal points in the price trends.

Importance of Technical Analysis

Technical analysis can prove to be helpful in the following cases:

Entry and Exit Point Identification

In order to maximise their investment returns, traders must determine the correct time to buy low and sell high. Technical analysis can be of great help in this instance. Traders can find the best entry and exit points by analysing price patterns, trends, and indicators such as moving averages and support and resistance levels.

Risk Management

Smart risk management is a crucial part of stock market investment. Technical analysis can facilitate this process and make it more effective. Support and resistance levels enable the trader to set stop-loss and take-profit orders to preserve profits and cap losses. For example, when the price of a stock falls below a certain support level, a trader may close the position so that additional losses will not be realised.

Market Sentiment

The overall attitude or approach of investors for any security or the market is called market sentiment or investor sentiment. By analysing historical price action and volumes to figure out trends and patterns, technical analysis can go a long way in understanding market sentiment.

Indiabulls Securities’ Technical Analysis Tools and Interactive Charts

Indiabulls Securities Limited is committed to assisting you in realising maximum trading potential. Through our technical analysis tools, you will be able to conduct a detailed study of the price movements and spot the optimal trading opportunities. Select your preferred charts and bars to look at market data, both historical and real-time, for different classes of assets.

With a detailed technical analysis, you are able to make more informed investment decisions in your stock market investments. Trading is also made easy with our various trading modes and platforms, namely mobile app, website, desktop, and on-call.