Technical Analysis Basics

Dhanashri Academy

DefinitionTechnical analysis is a term used for predicting the direction of prices of a stock through the study of past market data, primarily price and volume.

Chart Showing Price History And Volume

History

Technical analysis dated back from 17th century in Dutch and French markets. But where as in Asia, technical analysis is said to be developed by Homma Munehisa (Father of candlesticks) during early 18th century which evolved into the use of candlestick techniques(will be explained later in detail), and is today a technical analysis charting tool.Later in 20th centaury many technical analyzing tools were developed and many books were written by several technical analysts to forecast the direction of prices of a stock.

Continued…The books written by few analyst have played a significant role in doing the analysis which includes In the 1920s and 1930s Richard W. Schabacker published several books which continued the work of Charles Dow and William Peter Hamilton in their books Stock Market Theory and Practice and Technical Market Analysis. In 1948 Robert D. Edwards and John Magee published Technical Analysis of Stock Trends which is widely considered. These books are a must read for a person who considers serious learning of technical analysis.

Pioneers or so called pillars of Technical Analysis…

1. Dow Jones (known for his famous Dow Theory)

2. Ralph Nelson Elliott (known for his famous Elliot wave theory)

3. William Delbert Gann (also known as W.D.Gann, famous for his Gann fan\Gann wheel

4. Richard Wyckoff (known for his famous Wyckoff chart)

5. Bill Williams(known for his famous volume indicators)

Technical Analysis V/S

Fundamental AnalysisThe major difference between Fundamental Analysis (FA) and Technical Analysis (TA) is, While fundamental analysts examine earnings, dividends, new products, research and the like, technical analysts examine what investors fear or think about those developments and whether or not investors have the option to back up their opinions; these two concepts are called psych (psychology) and supply/demand(should consider very important in TA). Analysts employ many techniques, one of which is the use of charts. Using charts, technical analysts seek to identify price patterns and market trends in financial markets and attempt to exploit those patterns.

a. Price Patternb. Market trend

Candle Stick Explained

Graph Time Resolution

Daily - 1 candle = 1 dayUseful for analyzing short term trends

Weekly - 1 candle = 1 weekUseful for analyzing intermediate term trend

Monthly - 1 candle = 1 monthUseful for analyzing long term trends

Trend – The Direction Of Prices

Golden Rule Of Technical Analysis Trading

Trade With Trand

Want to trade successfully?

Just choose the good positions and avoid the bad ones. Poor trade selection takes a heavy toll as it bleeds your confidence and wallet.

You face many crossroads during each market day. Without a system of discipline

for your decision-making, impulse and emotion will undermine skills as you chase

the wrong stocks at the worst times.

Many short-term players view trading as a form of gambling

Without planning or discipline, they throw money at the market. The occasional big

score reinforces this easy money attitude but sets them up for ultimate failure. Without

defensive rules, insiders easily feed off these losers and send them off to other hobbies.

Technical Analysis teaches traders to execute positions based on numbers, time and volume

Without planning or discipline, they throw money at the market. The occasional big

score reinforces this easy money attitude but sets them up for ultimate failure. Without

defensive rules, insiders easily feed off these losers and send them off to other hobbies.

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