A common definition of Technical Analysis as said by John Murphy: “It is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends”.
Technical analysis is basically study of historical prices where underlying asset has traded in past. Study gives more emphasis on the closing price after which Open, High and low are the considered for analysis. As a Support to price for analysis even Volume and Open interest (For derivative markets) is considered to arrive at a conclusion on our technical research.
Three Rationales which analyst considers while he carries his technical research are:
- Market price, or stock price, discounts each and every event whether fundamental, political, psychological, political or any otherwise. It refers that prices are arrived with the difference in Demand and Supply of any factor mentioned Above.
- Price moves in trend is the second rational which a analyst believes while looking at prices charts. Trend can be either Up, Down or Sideways but stock has to be in either of the trend.
- History repeats itself: Though not in the exact sense or prices but it should be in similar patterns or similar type of trend characteristics.
So to start off with what is technical analysis this could be the thumb post for you all. If you have any queries feel free to reply this post and you shall get reply asap. In next post we will try to differentiate between Fundamental Analysis and Technical Analysis.