Why Technical Analysis Is Important in Stock Market?

Technical analysis shows pictorial representation of price history, making it easier to understand market reactions
Why Technical Analysis Is Important in Stock Market?
Why Technical Analysis Is Important in Stock Market?

This decade is all about making things easier and more accurate. Technical analysis does the same thing for the stock market. The historical market data is analyzed along with the price and volume in order to forecast the direction of prices; this is referred to as technical analysis. 

The two types of analysis for the stock market i.e. fundamental analysis and technical analysis, are said to be counterparts of each other.

Both carry their own importance. Technical analysis is a complementary approach to the stock market. It is more preferred by traders and investors. The technical analysis benefits in several ways and has more preference.

  1. Imply the Repetitive Patterns for Future

In technical analysis, you study the past patterns and this is very beneficial because human behavior remains the same; the reactions to the ups and downs of the market almost the same way every time. There is no use in analyzing the underpriced and overpriced stocks, studying the past patterns and implying them for the future is much helpful.

  1. Work with the Trends

Everyone in the world likes to work parallel with whatever is in trend and so does the market. There are several trends in the market e.g. upward trend, Sideways, Down you must analyse what is the trend, for e.g. if the trend is upward, you must try to buy into the market or stock. 

Technical analysis allows you to capture the momentum of trends. 

  1. Support and Resistance

The technical charts represent the support and resistance level. 

The charts symbolize the trading range, where prices move for an extended period of time, which represents that the demand and supply are deadlocked. Once the prices move out of this trading range, it is stating that supply or demand has started to get the upper hand. If these prices are above the trading range demand is winning, if it’s below, supply is winning. 

  1. Know When to Enter and Exit

Only Technical Analysis can provide a precise entry with a pre-defined exit point and Position Sizing for entering into Stocks, commodities, derivatives, or currencies.

  1. Detailed Information

The technical charts are very helpful for traders. Traders, as well as investors, are able to analyse the currency and the commodity market with the help of time frames. 

  1. Avoid Risks

No one wants to enter a situation of risks, it is said that the stock market is all about taking risks, but technical analysis can minimize these risks. Once, you understand the psychology of the investors and traders, it is easy for you to figure out your next step. 

Technical Analysis which was mainly based on candlesticks, momentum, volume indicators have now grown to an extremely advanced stage with tools like Market Profile and Order Flow providing the ability to understand the sentiment and strength of other market participants.

The technical analysis presents you with the pictorial representation of the price history which makes it easier for you to understand the market reactions. Once you understand this basic concept, you will be able to take your financial decisions smartly. 

The author is Co-founder, Catalyst Wealth

DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.

Related Stories

No stories found.
Outlook Business & Money