The basic idea of technical stock analysis
To foresee future trends in the marketplace the use of numerical series created by market movement, such as price and volume traded famous as technical stock analysis.It is very vital for businesses to forecast market for any probable adverse outcomes of forex market or gain from the situations. Businesses can use technical stock analysis to predict market performance. It is a counterpart of fundamental analysis. In technical stock analysis, by using past data and analyzing market actions; it is an attempt to forecast the outcome of the future. There is a huge lack of understanding and acceptance of this art. But one can mastered in this art in a very short period of time. There is no need to read financial statements again and again. It can predict future outcome by reading and interpreting patterns, charts and trends of market actions.
Homma Munehisa (1724-1803), great Japanese rice merchant is the father of candlestick charting and made billions of profit. He was acknowledged as a one of the greatest trader in history. Therefore, technical stock analysis appeared from Japan. In the late 19th century, Charles Dow introduces technical stock analysis in U.S.
Here are some basic concepts of technical stock analysis:
I. Three moving elements
First element is the primary movement, second element is secondary reaction and the third part is a minor swing movement. The long term trend that lasts for years is known as the primary movement. The trend which last for several months or the retrace of primary movement is known as secondary reaction. The last part are much shorter trend which usually last for hours up to a month and that is why known as minor swings.
II. Three stages
The market acts in three stages: an accumulation stage, media stage, and a selling stage. Accumulation stage is the phase in which sophisticated professionals are purchasing shares. In the media stage, media starts to consider the particular stock and the retail traders or investors start purchasing shares. In a selling stage, sophisticated professionals starts to sell while the retail traders still buying.
III. Discounting
It is simply means, all news are discounted by the market. Only factored news is come out.
IV. Importance of volume
In the technical stock analysis most important thing is volume. Volume must increase while trend to continue. Interest and additional buying are the two elements which boost the trend to new highs.