What is Technical Analysis?

Technical analysis is the study of market data that helps you predict the
price of security in the future. The market data used while using
technical analysis can be the support and resistance, Demand & Supply
of the security, candlestick patterns, chart patterns, and different
indicators.

Although accurately predicting the price of the security is difficult, you

can predict the price of the security up to a certain extent with the help of
technical analysis. Individuals can be used in different time frames
according to the preference of the investors.

Importance of Technical Analysis

Technical analysis helps individuals to understand the trend of the

market and helps them to invest or trade at the right time. It is widely
used by equity traders, commodity traders, and forex traders around the
world to predict prices in the long term as well as in the short term.
Technical analysis has gained popularity over the years with more
people believing that the historical data of the stocks can act as a strong
indicator for future performance.

Advantages Of Technical Analysis In Stock Trading

An individual can advantage of using technical analysis in the following

ways:

1. Understanding the Market Trend

Using technical analysis enables individuals to understand the probable
price movements in the future. The individuals will be able to understand
if the market is in an upward trend, a downward trend, or a sideways
trend based on which they can take their investment or trading
decisions.

2. Consistency in the indicators

Since the technical indicators are mathematically based, they give you
consistent data without any market bias. This helps you take more
logical decisions in the market.
 3. Entry and exit points in the market
While trading or investing, it is very important for an individual not to
enter or exit the market too early or too late. Using candlestick patterns
and various indicators gives individuals an idea about the right time to
enter or exit the market.

4. Different choices in technical analysis

While fundamental analysis can be done only using real-life information,
technical analysis can be done using different tools, indicators, candle
patterns, and market news. The method of doing technical analysis can
be customized according to the needs of the individuals.

5. Helps you set targets and stop-loss

People tend to be emotional while trading in the market which makes
them take irrational decisions leading to loss. But using technical
analysis helps you set a profit target and limits your losses according to
your risk appetite. This helps you avoid being emotional in the market.

6. Understanding Market Psychology

Since the stock is made up of a large number of people, it means there
are a lot of emotions involved in the market. People tend to panic or be
greedy based on the big market news and tend to cause a large
movement in the market. Technical analysis can help you understand
the impact of the news and take the right decisions in the market.

7. Gives you Early signals

The main advantages of technical analysis in stock trading are that they
help you know when the trend is getting exhausted in a particular
security. This can help you enter or exit at the right time in the market

Disadvantages Of Using Technical Analysis In Stock Trading

While there are advantages of using technical analysis in stock trading, it

comes with its own drawbacks:

1. Can sometimes give false signals

Though technical analysis helps you maintain consistency and
objectivity, it does not always go in your direction. While the analysis
may indicate an upside trend, the markets may move in the opposite
direction and vice versa.
 2. Ignores Fundamentals
Since technical analysis is based on mathematically based market data,
it ignores the key factors such as corporate reports, economic releases,
and external events which impact the share price of the company.

3. Different approaches
While individuals have the benefit of using different strategies while
trading. It can also lead to confusion among individuals as different
approaches can give different predictions of the market.