What is technical analysis?

Technical Analysis (also abbreviated as TA) is a popular technique that allows you to do just that. It not only helps you develop a point of view on a particular stock or index but also helps you define the trade keeping in mind the entry, exit and risk perspective.

Like all research techniques, Technical Analysis also comes with its own attributes, some of which can be highly complex. However, technology makes it easy to understand.

Technical Analysis is a research technique to identify trading opportunities in market based on the actions of market participants. The actions of market participants can be visualized by means of a stock chart. Over time, patterns are formed within these charts and each pattern conveys a certain message. The job of a technical analyst is to identify these patterns and develop a point of view.

Like any research technique, technical analysis stands on a bunch of assumptions. As a practitioner of technical analysis, you need to trade the markets keeping these assumptions in perspective. Of course, we will understand these assumptions in detail as we proceed along.

Also, at this point it makes sense to throw some light on a matter concerning FA and TA. Often people get into the argument contending a particular research technique is a better approach to market. However, in reality there is no such thing as the best research approach. Every research method has its own merits and demerits. It would be futile to spend time comparing TA and FA in order to figure out which is a better approach. Both the techniques are different and not comparable. In fact, a prudent trader would spend time educating himself on both the techniques so that he can identify great trading or investing opportunities.

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