How technical analysis works?

 Stock market technical analysis implies the study of historical market data, such as price and volume. Through the help of market psychology, economics and quantitative analysis, individuals use technical analysis to forecast future market behavior based on past performances. Chart patterns and technical analysis indicators are two common forms of it. Traders make their decisions based on technical analysis to know what is likely to happen in the stock market. 



Traders may use simple trend lines, volume indicators, chart patterns, technical indicators to make their decisions. 

Candlestick chart is the most commonly used chart pattern. Each candlestick chart denotes different price action in different time periods. For example, every candlestick on an hourly chart shows the price action for one hour, while every candlestick on a 4-hour chart showcases the price action during each 4-hour time period. 

Support and resistant levels are used to find out the price points on chart patterns where the probabilities favor a pause or reversal of a current trend. Support happens when a downtrend is expected to stop due to surplus demand. A concentration of supply causes an uptrend to pause, which leads to resistance. Support and resistance can be identified on charts through trend lines and moving averages. Price action shows the movement of a security’s price plotted over time. This movement is seen due to the changes in price in recent past.

Indicators are an important element of technical analysis. Indicators are pattern-based signals created through the price, volume, and/or open interest of a security or contract used by traders under technical analysis. They are utilized to confirm the price action moments. There are different kinds of indicators such as the relative strength index, moving averages, stochastic RSI, MACD and Bollinger Bands.

Click here to know more about stock market technical analysis.

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