Technical Analysis

Somebody asked me what Technical Analysis is. Actually I had learnt it a long time back, and frankly do not remember any definitions. I can look at a chart and tell, OK it is about time to buy or sell. But even that I am not sure if it’s right. So actually I look at the chart and still follow my gut feel.

This article on Technical Analysis I picked from the net just gives an overview of what it means.

Technical analysis is a technique that claims the ability to forecast the future direction of stock prices through the study of past market data, primarily price and volume. Technical analysis considers only the actual price behavior of the stock, on the assumption that price reflects all relevant factors before an investor becomes aware of them through other channels.

In simple terms Technical analysts believe that the historical performance of stocks and markets are indications of future performance. A fundamental analyst would study the fundamentals of each stock and then decide whether to buy it or not. By contrast, a technical analyst would sit in his office and make a list of trades on the stock. Disregarding the intrinsic value of the stock, his or her decision would be based on the patterns or activity of people doing trade.

In reality even the analyst won’t know what would happen, he too is just speculating. For that matter all of us are. That is why we have a stock market. Everyone wants to make money and nobody wants to fail. So we rely on analysts. That is how everyone makes money.

So it’s up to you to decide if you want to believe someone or some sort of analyst. It’s your money. We are very busy people, who do not have time to study stocks. There are lots of people who do study of stocks and these guys are employed by Magazines, newspapers, TV channels, Stock brokers, Mutual funds, etc.

We read their articles, listen to the radio or listen to our friends and relatives, and reach a decision on what to buy or sell. But remember one thing, whatever anyone says follow your instincts. Ultimately it’s your money. Technical Analysis is good, it gives you a fair indication, but this indication is just based on past data.

So we should always combine this data with other analysis, data or information.