The stock market is a place where your fortune can change in a short span of time. But for that to happen you must have the skills and knowledge. If you are entering the market without understanding the technical analysis, you are bound to make losses. The losses can be so huge that can wipe out all your capital.
Technical analysis is about understanding the pivot levels on the charts and predicting the future price levels. The stock price reflects all the known and unknown information so the best way to predict the future market price is by understanding the past patterns on the charts and using them for your benefit.
The technical analysis will help you not only protect your capital but also in making profits consistently. The dialogue from the movie Pushpa suits the study of technical analysis “flower nahi, fire hai mein”.
Benefits of Technical Analysis
- Stop Loss
When you are following the golden rules of technical analysis, you will always trade with stop loss in place. Without any stop loss, you put all of your capital at risk and can even lead to complete erosion. Those traders who do not put any stop loss in place keep holding the stock in hope. No matter how much loss they continue to suffer, they never square off their position in hope.
- Entry and Exit
The most important role of technical analysis is determining when to enter or exit a stock. When you know the entry and exit point in the stock you would not suffer major losses in the market or as they say in the movie Pushpa “jhukega nahi sala”. With the help of various indicators in the market, you can make good profits in the market.
Technical analysis helps the traders and investors to take trades on the basis of trend analysis. With the help of trend analysis, you can identify Up Trend, Down Trend, and Sideways or Ranging Market. Depending on the type of trade you take, the trend analysis can help you in determining how rewarding it can be to take a position.
- Early Signals
The common mistake that traders do in the market is to ignore the early signals of reversals and then face losses. They keep holding their positions and wait until their loss-making trade becomes profitable. Technical analysis uses price-volume analysis to identify the direction of the stock price and protect you from taking a wrong trade.
- Higher Winning Rate
The technical analysis has a higher winning rate i.e. there will be more profitable trades than the loss-making ones. The higher success rate ensures that you end up with higher profits and lesser loss-making trades. Moreover, technical analysis ensures that you enter a trade with a higher risk-reward ratio.
- Breakout and Breakdown
When you take trades using technical analysis, you know the breakout and breakdown in the stock price. You can look at the support and resistance levels of the stock price on the chart and identity the future move. If the stock price crosses the resistance then it is a breakout and if the price goes below the support level then it is a breakdown.
From the above benefits, one thing is clear technical analysis is important for trading in the stock market. People who constantly practice the art of technical analysis generate higher profits in comparison to those who do not follow the study. Understanding the concept of technical analysis requires time and application in the real market. With time the art becomes finer and you become an expert at it.
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