INTRODUCTION TO TECHNICAL ANALYSIS

For analyzing a particular stock or an instrument in the market, 2 different types of approach can be used by using which one can decide when to enter and when to exit. This approach is universally common and can be applied to any market in any country dealing any instrument let it be stocks, futures, commodities, currencies, bonds, let it be in India, USA, UK, Singapore etc., still these approach holds.

The two approaches for analysis are

• Fundamental Analysis
• Technical Analysis

FUNDAMENTAL ANALYSIS: Fundamental analysis mainly deals with understanding the balance sheet of the instrument or interest rate expectations of when trading currencies and estimating whether the instrument is overvalued or undervalued. This particular approach is mainly preferred by long investors. One such example for fundamental analyst is Mr. Warren Buffet who uses this approach.

TECHNICAL ANALYSIS: Technical analysis doesn’t consider (or) care about the fundamental values of an instrument and it is focused only in using the historical price action of the instrument to determine whether the instrument is overvalued or undervalued. One such example for technical analyst is Mr. James Simon who used this approach to create $11 billion dollar worth wealth.

For my view both fundamental as well as technical analysis works well and it depends on what type of investor you are and how long you’re planning to invest. A fundamentally strong company might be technical weak at the current moment. So know what type of investor you are and follow an analysis accordingly.

As I am technical analysis fan in this blog you will find all the analysis done will be solely based on technical considerations only. Nevertheless one can mix technical analysis with fundamental analysis and create a unique method to catch instruments which is both fundamentally as well as technically strong.

Hope you got a brief view about the two different analyses available. In the next article Dow theory and trends we will look into how historical price action is used by technical analyst to know whether the market is, and where it might be heading too. As always you’re free to comment on the blog in the comments section and also if you like the post share it with your friends.