Technical Analysis Important Facts

Day trading in stocks is risky, more so if you are untrained. However, if you have an eye for spotting market trends, you can make a neat pile in quick intra-day deals. There was a time not long ago when trading was a simple game of buying and selling stocks based on one's conviction. Now, technical analysis- a science of predicting future prices from historical price data-has given investors new tools. Technical analysis increases the probability of your call being right. But, we reiterate what we mentioned in our report,

How it works

Technical analysis is done on the basis of historical price movement plotted on a two-dimensional chart. One reason it has become popular is that anybody can look at the chart and see how prices have moved.
For example, in the chart, Easy Reading, you can see open, high, low and closing prices of the Bombay Stock Exchange Sensex on July 7, 2011. 

How to pick a stock

• Good volume and volatility are a must to gain from trading. While volume should ideally be at least 500,000 shares, the stock should have a high beta, or volatility. This means if the index rises 1%, the stock should rise by more than 1%. Those who don't understand the concept should see to it that the difference between intra-day high and intra-day low prices of a stock is at least Rs 10.

• Identifying the right stock and fixing a stop-loss level is a must. One must stick to the stop-loss. Generally, stop-loss is fixed at 1.5-2%, which means the stock is sold if it falls 1.5-2% below the purchase price. Big traders generally fix stop-loss at about one-third of the expected profit. For example, if they expect a stock to rise 10% in three days, they set a stop-loss at a point the price falls by 3%.

• Once you zero in on the stock, look at its volumes and price trends. Generally, higher volumes with higher price rise indicate an uptrend, but it should not be considered a thumb rule. "Volume is misread by a lot of people," says John Barrett, an instructor at Online Trading Academy, which teaches stock trading. Big volumes and large moves sometimes throw up big tops and bottoms, says Barrett. This means if both volumes and prices are increasing, it may be the last leg of the rally. 

Stock Trends

Identifying trends is important. But how do you spot a trend? It's difficult, as the market never moves in a straight line. A stock will never fall continuously on a given day and rise on another. Generally, higher highs and higher lows indicate an uptrend, whereas lower highs and lower lows mean a downtrend,

Analysts and market experts take the help of various parameters to confirm if a stock is a trade pick. The most used are available in any technical analysis software. These include 200-day moving average, relative strength index, moving average convergence divergence, or MACD, Fibonacci retracement and candle stick price chart. The terms may sound daunting, but software available nowadays makes technical analysis easy. 


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Analysing Market Trends

What is Market Trend Analysis?

An aspect of technical analysis that tries to predict the future movement of a stock based on past data. Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. 

Market trends are the upward or downward movement of a market, during a period of time. The direction of any market at any given time is either Bullish (Up), Bearish (Down), or Neutral (Sideways). " Markets move in waves", and in order to make money, a trader must catch the wave at the right time. 

Understanding the Trendlines

The chart depicts a Trendline being drawn from left of the chart to the right from the highest price peak to lower price thus displaying a Bearish Outlook

 

The chart here shows a trendline being drawn from left to right but the prices have been broken and not exactly collinear and are also closed above it. this phase indicates the beginning of new trend

The chart depicts the possible buying areas for Traders by the help of Trendline supporting boundaries

Channel Lines

When prices remain within two parallel Trendlines they form a Channel. When prices hit the bottom trendline this may be used as a buying area. Similarly, when prices hit the upper trendline this may be used as a selling area. So, channel lines helps traders a great deal in decision making. Waves or Patterns should be carefully noticed while doing analysis. 





Support Trend Line 

A Support Level is a price level where the price tends to find support as it is going down. Buying interest is strong enough to overcome Selling interest, keeping prices at a uninterrupted level.

Resistance Trend Line

A resistance level is the opposite of a support level. It is where the price tends to find resistance as it is going up. Selling Interest overcomes Buying interest. 

The following chart depicts the Support Trend Line and Resistance Trend Line 

Conclusion

So, Trend analysis examines data to determine if certain actions or reactions occur in a Patterned Market Trend. Trend analysis helps traders and analysts in a different way as they attempt to make predictions about Market Direction and Price Movements. But all works good when you have the right quality of Data Feed into the Analysis Platform. If quality of real time data feed is not up to mark then the analysis becomes more or less insignificant and highly risky. There are many Real Time Data Service Providers in the country but very few are among them who really maintains quality standard. Some companies like Rtdsdata.com are very good when it comes to maintaining quality standard. Besides the fact of real time data, there is also another factor of Data Recoverability that plays a vital role as well in analysis. Lost Data or Gaps in data will act as a barrier towards effective analysis. Such vital factor should not be neglected and thus Service Providers like Rtdsdata.com are gradually becoming very popular when it comes to maintaining parameters like Quality, Data Recoverability, Prompt Technical Support. So traders will have to be very cautious while choosing the right Data Service Provider.

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