World first stock market crash took place in 1634 due to the introduction of tulip flower from Turkey to Dutch. Next is followed by 1929, black Monday crash when the stock fell 12.8% on the fourth day of the crash and it moved American to the stone age and the market took 12 years to recover. Again, “Black Monday the 2nd” in 1987, Dot.com collapse in 1999 – 2000, and Great Recession in 2008.
Technical Analysis can show a snapshot of the overall market and can bring more discipline in trading for investors. It helps to read patterns and forecast possible bulls and bears market.
Factors which will be helpful to identify possible prediction:
- It recognizes trends, patterns and the 4 market phases
- Past and present instability
- Stock’s ability and value compared to the overall market
- Identify support and resistance levels
- Price fluctuations and stock value before and after events
- Volume and trading levels of history
- Entry and exit points
Steps to do Technical Analysis:
- Understand one tool from the below list and learn new trends
- Up Trend: It is seen when continuous high and low become more progressively higher
- Down Trend: When successive highs and lows show a lower trend
- Horizontal Trend: Previous high and low are constant with new highs and low
- Use different from candlesticks, bar, time with timing from 3 min to 1 hour to capture all patterns of each stock
- Head and Shoulder: Shows reverse trends
- Cup and a handle: Upward trend after a pause downward movement
- Round bottom: Down trend before a small up trend
- Double Top: Two failed attempts to cross high or low price with reversal of trends
- Triangles: Shows a period of resistance with an up and down trend from a horizontal support
- Wedges: Up or Down trend with smaller bands
- Pennants: Continuous patterns moving sideways
- Flags: Shows small movement in narrow ranges
- Understanding trends will help to find key movement in charts
- History repeats itself in terms of entry and exit points
- Look for events which make investor buy or sell, any movement can be helpful
- Understand support and resistance which will help to target points in order to buy or sell
- Trading volume plays a key role in the psychology of the investor
- Use the below indicators and oscillators to support your decisions
- Find the right brokerage to execute your trades as per future, stocks and options
- Always advised the analyst to follow “The Dow Theory” rules of trading
- Best advice by the expert analyst is to go with the trend, if the market is up, buy it or down then sell it
- Never always rely on a shorter time frame. It provides more vibration than a longer time frame, always depends upon dual time frame
- Never go against your indicator or analysis. Not taking the trade as per your decision is also called trading
- Your approach to a decision should be dynamic and moving with a single solution is not a wise idea
Key Technical Tools or Indicator:
- Moving Averages
- Volume and Momentum
- Relative Performance
- Support and Resistance
- Moving Average Convergence Divergence (MACD)
- Relative Strength Index (RSI)
- Fibonacci Retracement
- Parabolic SAR
- Bollinger Bands
- On Balance Volume
- Probability Analysis
Advantages of Technical Analysis:
- Easy to learn and provide quick
- Does not involve accounting and data problems
- Covers psychological as well as economic analysis behind price changes
- Insights to when to buy or exit, not why investors are buying
Disadvantages of Technical Analysis:
- Many analysts say it doesn’t work
- Too subjective to be of any real use
Specialized experts view the market as 70% psychological and 20% legitimate. Always depends upon the force of buy or sale. Despite the fact that there are some general standards and tenets that can be connected, it must be recalled that it is a greater amount of fine art than a science.
Nonetheless, it is likewise adaptable in its methodology and every financial investor should utilize just that which suits his or her style.
And best advice as you reached the end of our paper, Thank you for your patience which is required the most to reach your desired target without any stop loss.
