Technical analysis is one of the two ways by which one can select investment instruments. At the same time, it is one of the concepts of corporate finance that is widely used by the technical analysts. The technical analysis is used to distinguish the systematic price patterns and existing trends of the securities market movement.
Once these are identified, the investments can be done in those financial instruments that are safe and reflect the potential of development in the future. Various instruments are used for the purpose of technical analysis and among these instruments the price charts are the primary instruments on which the analysts depend mostly.
Apart from these, the analysts also concentrate on some other instruments like the indicators of price, volume and also those that represent the fluctuations of the market. At the same time, the sentiments of the investors are very important for the financial market and so the analysts are also bound to follow those charts that are reflecting the psychology of the investor. Through this process, the market analysts aim at covering the risks properly and managing the money in such a way that the returns can be maximum.
The technical analysis is opposite to the concept of fundamental analysis.
The fundamental analysis depends on the past and present history of the stock and through that it assumes the future movement of the particular stock. But in case of technical analysis, price and the existing trend are studied to assume the future of the particular stock. The analysts of the security market believe firmly that the prices of the stocks itself represent the fluctuations and the movements of the market. Because of all this, the technical analysts find it very hard to believe on the fundamental analysis.
The concept of technical analysis was developed by a number of different schools. There are several schools that are not ready to accept other schools or approaches but at the same time there are some investors who apply a combination of more than one approach. Some of the famous concepts of the technical analysis are the following:
Distribution index Moving average
Commodity Channel Index
Average true range
Rahul Mohindar Oscillator
Relative Strength Index (RSI)
Point and figure charts
Last Updated on : 27th June 2013