Does technical analysis really work?


#1

Technical Analysis in Stock Trading is one of the most popular methods of predicting the future price movement in the stock market. I would like to know if the technical analysis is very successful in predicting the future price movement in the stock market.

There are so many technical indicators, methods, strategies, and charting software I have used but have not successed in the stock market.


Technical Analysis for Indian Stock Market: What indicator gives the best returns and why?
#2

Yes, it does work.

I have been trading trends for last few years and consistently making money is possible over the long term. There are two main points that are very important to the technical analysis.

  1. A trend is Your Friend

  2. History repeats itself.

Technical analysis means the decision taken on the basis of security’s past price, volume & Open Interest.

The reason why so many traders lose money in stock market is that of an undisciplined way of stock trading.


#3

If it really works why is it that 90% of the Stock Traders lose money in the stock market?

Is there something that we should avoid. Why do a majority of traders lose money in the stock market?


#4

Yes technical analysis really works. But you have to understand this from the basics. Practice it daily on daily then you will understand how it works.

If Charts and Technical patterns interest you, it seems that you are drawn towards Technical Analysis. So if you are new to this field, here are few guidelines you can follow to build your base in Technical analysis.

1. Read Good Books

Start with good books on Technical Analysis like-
a. Reminiscences of a Stock Operator (By Edwin Lefevre)
b. Trading for a living (By Alexander Elder)
c. Technical Analysis of the Financial Markets (By John J Murphy)
d. Japanese Candlestick Charting Techniques (By Steve Nison)
e. Encyclopedia of Chart Patterns (By Thomas Bulkowski)

2. Learn Technical Analysis

If you are willing to learn technical analysis from very basic, you can take up Technical Analysis Course certified by NSE Academy.
Moreover, you can also go through the study material or videos in google to develop an understanding of technical analysis.

3. Read articles and blogs

You can regularly go through good blogs or articles or videos like-
a. StockCharts
b. Tradeacademy
c. Elearnmarkets.com
d. Trading with Rayner
You can also watch videos on Technical Analysis here.
4. Virtual trading is important
Paper trading is a good way to track your performance and understanding on the subject. Moreover, you can use NSE Paathshala for virtual trading. This process is very important before entering into the actual trade in the market.
5. Market Psychology
Psychology plays a very important role in trading just like in a game of chess or in athletics. As a trader progresses from novice to expert, the understanding of both individual and crowd psychology becomes extremely relevant to become a successful trader apart from gaining the basic knowledge like chart patterns, risk management, market structure etc. With the market becoming extremely competitive day by day, traders are facing a lot of challenges which are sure to test their skills and limit of their psychologies.
6. Follow good traders
Start following good traders in the world. Read about them, their trading strategies, their books, etc and it will surely benefit you in your trading career in the long run. Some of the well-known names in the industry are as follow-
a. Paul Tudor Jones
b. Jack Swagger
c. Alexander Elder
d. Martin J Pring
e. John J Murphy
7. Opt for Professional degree
You can opt for CMT course, to gain specialization and detailed knowledge on technical analysis


#5

Thanks @raj

This is a pretty detailed explanation. I guess Technical analysis course certified by NSE Academy sounds very good. Thanks for sharing the information.


#6

Thank you for the valuable feedback!


#8

A Small Story !!!

There was a technical analyst, one of the best, but he couldn’t find success as a trader. So, to make ends meet, he joined a big financial institution as chief technical analyst. The chairman of the firm was an old-fox who had spent all his life trading on the floor and didn’t know a thing about technical analysis. So, once the chairman asked the technician to show how charts work and how does he trade using them. The technician swelled with pride that he got a chance to teach things to the billionaire chairman of the firm and it was his golden ticket to impress him and rise within the organization. So with a base of maturity in his voice, the technician started showing the chart of Soybean to the chairman and started explaining that this is the support and resistance for the day, based upon the range analysis and if price comes down to this support level, the price is bound to go up from there. The chairman asked that why it is “bound” to go up from here? Technician replied, “Well, because that’s how supports work.” Within few minutes, the price came down to the support. The chairman picked up the phone, called his broker and gave the order to sell 2 million Soybean (bushels) at market. And in a moment, the price broke the support and started plummeting like there’s no tomorrow. The chairman turned to the technician and said, “Son, if I can do this to your chart, anyone can”.

Lessons:

  1. Anything can happen.

  2. Do not get married to opinion.

  3. Analysis is not trading.

  4. Risk management is the primary task.

  5. There are no “WILLs” & “SHALLs” in the market, just probabilities.

Courtesy: Techno-Funda Society