What is Technical Analysis and Why It Matters?

While trading, do you feel that stock prices are too unpredictable? They tend to move up and down with no clear reason. However, there’s a well-defined science and behavioral psychology behind all this. If you want to know how the stock market works and simply not trade based on tips, it’s time you learn technical analysis.

In this blog, we have covered what technical analysis means and why it matters for traders.

What is Technical Analysis?

Technical analysis is the study that helps you understand the relation between stock price movements, volume, and the psychology of traders. While fundamental analysis involves analysing the revenue, earnings, and management of a company, technical analysis purely focuses on how the market behaves.

Technical analysis is based on three key concepts:

• The stock price reflects every piece of information available to traders.
• As human psychology remains the same, price patterns tend to recur over time.
• Prices move in trends. So, once a trend is established, it is likely to continue before reversing.

When you learn stock market based on these key principles, you can make decisions based on signals and not emotions.

How is Technical Analysis Done?

In this section, we have discussed the foundational concepts of technical analysis.

1. Price Charts

Price charts show how the price of a stock moves over time. Bars, candlestick charts, and lines are used to denote these movements. Candlestick charts are the most popular as they show different patterns like doji, hammer, or engulfing. Each of these patterns signals something, like trend continuation or reversal.

2. Trends and Trendlines

Trends show the direction in which the market is moving. It can be upward, downward, or sideways. These trendlines help traders identify key support and resistance zones where price movements may pause or reverse. When you recognise these patterns, you can trade in line with the broader market flow.

3. Indicators and Oscillators

Comprehensive courses for technical analysis from Upsurge.club provide traders with deep insights into technical indicators like:

• RSI
• MACD
• Moving averages

Each of these indicators provides valuable signals on the market momentum and strength. 

4. Volume and Market Breadth

The strength of the price movement of a stock finds its reflection in volume. When prices soar with high volume, it indicates a strong buying interest. On the other hand, low volume may point to weak participation.

Market breadth indicators, on the other hand, measure how many stocks are rising or falling. It is used to understand the overall health and participation level of the market.

Why Technical Analysis Matters?

Here’s why learning technical analysis benefits traders.

• It gives structure to your decision-making process as you don’t react to news or emotions
• Technical analysis helps you identify clear entry and exit points
• Since you avoid impulsive trades, it reduces emotional bias 

Conclusion

Technical analysis is backed by both science and the psychology of traders, which improves the odds in your favour. It helps you visualise what’s happening in the background as stock prices fluctuate. Working on the available data, you can make strategic decisions and trade with confidence.

Remember, every successful trader once started by learning to read a chart. So, take your time to learn stock market techniques from online resources and make your next trade based on data. To learn more, enrol in online courses from Upsurge.club.