What is technical analysis
Technical analysis is a tool by means of which traders make a profit in the stock market and investors can choose right entry and exit point in the stock market.Without technical analysis trading stocks profitably is impossible.In other words, if someone is trading stocks in the market without the use of technical analysis,then it is just a gamble.Technical analysis uses different means to understand the nature of supply and demand.It uses chart patterns and different types of indicators as well as oscillators to predict the movement of the future price.
Assumptions in technical analysis
Technical analysis works by considering a few assumptions such as:
1.Market discount Everything:
This means the price of the stock reflects everything.It does not consider the fundamentals of the company.It believes that price of the stock reflects the fundamentals of the company at a given point in time.This a major criticism of technical analysis.
2.Prices moves in trends:
Technical analysis believes that price of a stock move in trends.That is if a trend is established, then the future price movements are expected to be in that direction only.
3.History tends to repeat itself
The price of a stock is assumed to move in the direction in which the market has reacted to the similar situation previously.That is in the technical analysis it is assumed that prices of a stock are assumed to move in the same direction when there was the similar market situation.