Overview In Technical Analysis

 Application on asset types

Technical analysis may learn about any asset class as long as it has historical time series data, which is one of its most adaptable features. In the context of technical analysis, time series data is information about price variables such as open high, low, close, volume, and so on

. Here’s an example that might help. Consider learning to drive a car. You can drive any car once you’ve learned how to drive. The same is true for technical analysis; it simply has to be re-master initially. After that, you can apply TA’s principle to any asset class, including stocks, commodities, foreign exchange, and fixed income. This is perhaps one of the most significant advantages of TA over other fields of study. When it comes to fundamental equity analysis, for example, one must examine the profit and loss, balance sheet, and cash flow statements

. The fundamental examination of commodities, on the other hand, is entirely different. If you are working with an agricultural product such as coffee or pepper, the fundamental analysis will include an examination of rainfall, harvest, demand, supply, inventory, and so on. The fundamentals of metal commodities, however, differ from those of energy commodities. As a result, the fundamentals vary every time you select a commodity. In each case, regardless of the item under consideration, the premise of technical analysis remains the same. An indicator like the Moving Average Convergence Divergence (MACD) or the Relative Strength Index (RSI), for example, is the same way when trading stocks, commodities, or currencies.

Assumption of Technical Analysis

Technical analysts are unconcern, unlike fundamental analysts whether a stock is overvalue. The only thing that matters is the stock’s previous trading data (price and volume) and the knowledge this data can provide regarding the security’s future movement.

A few key assumptions underpin technical analysis. To achieve the greatest results, one must be conscious of these assumptions.

1. Markets discount everything:-This theory presupposes that the latest stock price reflects all known and undiscovered information in the public domain. For example, an insider may be buying the company’s stock in big quantities in anticipation of a positive quarterly earnings announcement. While he is doing this covertly, the price reacts, revealing to the technical analyst that this could be a good buy.

2. The how is more important than why? :-This is a development of the initial assumption. Using the same scenario as before, the technical analyst isn’t interested in why the insider acquired the stock as long as he understands how the price reacted to the insider’s move.

3. Price moves in trend:-All major market movements are the result of a trend. The foundation of technical analysis is the idea of trends. For example, the recent rise in the NIFTY Index from 6400 to 7700 did not occur overnight. This transition occurred in stages over 11 months. The price will go in the direction of the trend after it has been forming due, to put it another way.

4. History tends to repeat itself:-The price tends to repeat itself in the context of technical analysis. This occurs when market participants regularly react in a surprisingly comparable manner to price fluctuations in a given direction. In up-trending markets, for example, market participants become greedy and want to buy regardless of the high price. Similarly, in a slump, market players desire to sell regardless of the low and unappealing pricing. The repetition of price history is ensuring by his human response.

The trade summary

From 9:15 a.m. to 3:30 p.m., the Indian stock exchange is open. Millions of trades take occur during the 6 hour 15 minute trading period. Take a look at a certain stock: on the exchange, trades have made every minute. Do we, as market participants, need to keep track of all the many price points at which a trade is going well?

Consider this particular stock with several trades to further explain this point. Take a look at the image below. Each point reflects a transaction that was finish at a particular moment. A graph with every second from 9:15 AM to 3:30 PM included will have numerous points. As a result, for clarity, I’ve drawn a limited time scale period in the chart below: The market began at 9:15 a.m. and closed at 3:30 p.m., with several trading taking place. 


Keeping track of all these distinct price points will be next to impossible. In actuality, what is a summary of the trading activity rather than data on -The highest price at which market players were willing to transact on a given day. . The closing acts as a guide for intraday strength. 

The day is consider positive if the close is higher than the open; otherwise, it is referring to as negative. Of course, as we move through the module, we will go over this in greater depth.