Technical Indicators for Smarter Investing
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Investments trends, with respect to securities and stock trading, usually depend on two very crucial things: value of a company and emotions that drive price movements in the market, usually with respect to supply and demand. Applying investment lexicon to this idea, it is ‘fundamental analysis’ which determines a company’s valuation while ‘technical analysis’ is responsible for pinning price movements to determine where the prices are headed next. Technical analysis does not take in account characteristics of a company to determine price trajectory but narrows trends with respect to past market data, primary price and volumetransformations.
Despite stock markets being the unpredictable vortex they are, technical analysis is considered to be the more empirical way to understand and conduct investing in this vortex. It is controlled by many trading rules and models based on price and volume transformations, such as business cycles, stock market cycles or through recognition of chart patterns. This type of technique is often referred to by promoters and inside players before buying cycle of a stock, with respect to a long –term view, begins. Often the activity of such investment players reflects on the current stock prices as well as volume charts. This happens because technical analysts hold ‘patterns’ to be the guiding force of a stock trend. They are driven by the emotion that there exist patterns which repeat themselves time and again, and it is in the spotting of these patterns that a stock trend can be caught early on. For such technicians, patterns are recognizable, predictable and develop into price charts.
The process of technical analysis is two-fold: Chartist and Quantitative. Charting Theories denote a graphical representation of a series of prices over a set time frame. Such analysis is conducted via observing Chart patterns, Wave analysis and Trend lines. Quantitative analysis, on the other hand, covers indicators and oscillators. Indicators are calculations based on the price and the volume of a security for measuring things such as money flow, trends, volatility and momentum. Oscillators describe a range and signal significant stock periods.
Being a scientific virtue that extends some hope of conducting investments in a somewhat controlled, rather reflective, environment, technical analysis holds a lot of promise for first-time investors. Beginners can opt for basic charting theories and basic quantitative indicators to understand stock patterns and use them to guide their investments. However, it is important they understand the nuances of technical indicators clearly first. Only then can they decipher and interpret indicators properly. Technical analysis is subjectively driven and hence it is important to understand and weigh in the trends as best as possible through personal scrutiny. |
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Author Resource:-
Technical indicators help investors trade in stocks intelligently while at the same time reducing risks. For more on how you can learn to trade in the stock market using technical analysis, do visit our website http://www.kotaksecurities.com, An Educational Initiative by Kotak Securities.
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By :
Kotak Securities
Submitted
2012-02-08 12:23:53 |
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