Quick Guide to Technical Analysis for Indian Traders

As a new trader starting out in India, you may feel a little overwhelmed about the financial instruments in the market. This is entirely normal. A myriad of global factors affect the prices of currencies, commodities, indices, and shares. Sometimes these factors have a direct correlation to the prices of financial instruments, and at other times it is a non-linear relationship.

Regardless, to be successful at financial trading online it is imperative that you have a sound understanding of technical analysis. The markets are a hive of activity. Every second of every day, traders, speculators, investors, and market players are shaping the financial markets. It is a process of ongoing learning, and despite your depth and breadth of knowledge of the financial markets there is always more to be learned.

Using Trends to Predict Future Prices

Trading successfully requires a solid foundation of key market fundamentals. The relationships between interest rates, inflation rates, currency exchange rates, fiscal policy, monetary policy, geopolitical events, et al need to be understood in their entirety. These complex interrelationships have the potential to dramatically raise or lower asset prices. Individuals who successfully integrate their knowledge of financial markets into their trading activity are far more likely to succeed.

Nobody can predict the outcomes of any market decision with absolute certainty. However, if you have a keen grasp of the basics, you are well on your way to understanding technical analysis and its impact on your trading decisions. By employing technical analysis, you are effectively monitoring asset prices over time. It has been said that the past is a great indicator of the future, and this holds true with trends that we see in technical analysis. Expert traders routinely cite the patterns and trends evident in technical analysis as the reasons for their ongoing success in trading.

 

Bolster Your Understanding of Charting

Price movement is the mainstay of charting. If prices didn’t move, we wouldn’t see anything in the financial charts of shares, commodities, indices, or currency pairs. A thorough technical analysis includes all manner of price movements for a specific financial instrument over time. By extrapolating over time, we get to see what the underlying asset is doing over time intervals. This could be minutes or hours for currency pairs, days, weeks or months for commodities, shares, and indices.

In any event, the benefit of a chart is evident in the patterns that we see developing. Sometimes trends are short-lived, and sometimes they take place over a long period of time. For example, we can see a gradual bearish uptrend taking place for an underlying asset over a long period of time. Provided the asset is generally rising over the period in question, we can safely assume that it is appreciating and bullish.

Of course, it is entirely possible that an asset will move in the opposite direction and display bearish tendencies. A bearish trending market is one that moves lower over time. It can be a gradual decline or a sharp decline. There are many examples of bullish and bearish markets, notably the bearish market that preceded the 2008 global financial crisis.

Another short-term bearish market ensued after the January 2016 collapse of the Chinese bourses – the Shanghai composite index and the Shenzhen composite index. That was when the Chinese growth rate declined below the 7% figure and a dramatic slowdown took place and commodities demand tapered off significantly. Of course, there is always speculation that comes into play with technical analysis. Speculators can drive markets more than fundamentals can.

Different Types of Charts and Indicators for Traders

Traders will find many different types of charts available. These include the standard line charts and bar charts. In both cases, the charts provide information on price movements over time. A bar chart is a little more detailed in that additional information is provided vis-à-vis highest price/lowest price, opening price, and closing price. This is especially useful when gauging the price movement of an asset over a specific timeframe. With technical analysis, you will notice peaks and troughs.

The peaks represent resistance levels (price maximums) and the troughs represent support levels (price minimums). Typically, when tracking the movements of underlying assets we watch for movements close to peaks and troughs, in addition to 50-day moving averages and 200-day moving averages. These technical indicators provide useful information for plotting future price movements.

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