6.5 What is Technical Analysis ?


As discussed earlier, technical analysis is the study of a share's price movement in the past and using it to predict where the price will head in the future. The basic assumptions made in technical analysis are as follows:

  • Market action discounts everything.
  • Prices move in trends (uptrend, downtrend or sideways movement).
  • History repeats itself.

How is technical analysis carried out?

  • Analyse the stock chart you are interested in.
  • Look out for the trends (downtrend/uptrend/sideways).
  • Look out for any particular patterns.
  • Look out for support and resistance levels.
  • Look out for indicators and ensure that they are in tune with the trend.
  • Decide to buy or sell.
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