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Why Technical Analysis?
Stock markets are highly volatile. The sharp movements that occur in share prices
provide us with great opportunities to make huge profits by trading in equities.
However, a majority of the people find themselves on the losing side and end up
making huge losses. This is mainly because of the characteristics of the human mind
viz. - Greed, Fear and Hope. Some never book profits when they get the move right,
as they are greedy for more profits. Others panic and book losses in the fear of
losing heavily only to see the stock move their way after they have exited. The
worst affected are those who know that they are on the wrong side of the market
but still hold on to the stock with the hope that sooner or later things will go
their way.
Technical Analysis helps in forecasting the future price movements of a share based
on its current as well as the historical price data. The way in which the price
of a stock moves helps in predicting the future price of that stock. It is based
on the laws of Demand & Supply, and can also be used to decide the right timing
for buying or selling a share. Technical Analysis attempts to spot the direction
in which the masses are moving and will work better in scrips which have a mass
following. Also, Technical Analysis helps in spotting changes in trends and price
patterns based on which one can take timely investment/trading decisions. Technical
Analysis is a very effective tool in determining profit levels as well as stop-losses
and it should ideally be used along with Fundamental Analysis. A word of caution-Technical
Analysis is not infallible, as it is linked to the minds of people, which are fluctuating
and indecisive at times and at such times it may fail or may not give clear indications.
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