Blog #1: Technical Analysis: Using Charts and Indicators to Make Informed Decisions

About: Mastering Technical Analysis: A Beginner's Guide to Charts and Indicators

Introduction

In the world of stock market, technical analysis is what guides you to make your investment decision. Mastering this skill will deeply refine your trading skills, and enhance your market insights. Let's dive more into technical analysis and its functionality that helps you to make rational decisions.

Understanding Technical Analysis

Technical analysis is a widely used tool and can be used in any freely traded securities like equities, bonds, commodities, currencies, and derivatives in the global market. Technical Analysis is purely data-driven and relies on past market data and helps us to predict future price movements. Technical Analysis is mainly used by traders to analyze trends, price patterns, volume, and historical performance to identify signals(Buy or Sell) based on market sentiment and volatility. Mastering Technical Analysis also gives you an edge over 90% of the traders by helping you to understand market psychology and make rational decisions. 

Essential Tools and Indicators

 Charts

Charts are the foundation of Technical Analysis. Charts visually represent the price movements of an underlying asset according to our reset time frame. Technical Analysis consists of some of the most important chart types mentioned below:

• Line chart: A simple and straightforward way to see the price pattern connecting closing prices from over a specific time period.
•  Bar chart: A chart formed by distinctive sizes of bar which shows the opening and closing of the security. The Bar chart consists of a vertical line that indicates high and low, whereas the horizontal lines show opening and closing prices.
• Japanese Candlestick chart: Most popular among others and depicts more data with the help of indicators which we'll talk about later in this blog. One Candle can represent open-high-low-close for different time frames from seconds to months. Candlestick creates various candles and patterns which helps us to get better idea about the trend.

Indicators

Indicators are mathematically calculated signals taken from price, volume, volatility, etc to give us even better picture on price movement. 

Simple Moving Average/ Exponential Moving Average: This smooths out data to identify trends in direction. SMA is the average price over a specific time and EMA is also average but gives more weight to recent prices.

Relative Strength Index (RSI): This indicator depicts whether the underlying asset is overbought or oversold. This basically reflects volume and market depth through a line.  

Bollinger bands: BB consists of moving average and two standard deviations and indicates potential price reversals.

MACD(Moving Average Convergence Divergence): Helps traders to identify entry and exit points by calculating the relationship between two moving averages.

Tips for Successful Technical Analysis

Study & Practice: Keep a trading journal and document all your trades and review it after the market closes about what you did right and wrong. Doing it for the first time I would suggest to do paper trades.

Create a system: Every successful trader has their own system which they follow with full discipline. identify what works for you and be disciplined. 

Control your Emotions: Don't rush into trades, don't do revenge trades, don't trade every 5 mins, don't let greed control you.

Conclusion

Technical analysis is a powerful and efficient tool to master. By mastering the identification of patterns one can make an informed and wise trading decision and can beat the market by large margins. Things to remember are practice and patience are the key to becoming a successful trader.