What do you mean by Technical Analysis?
Well, technical analysis is an art to forecast the future prices of a stock, commodity or any index etc. by looking at historical data(usually prices) through charts.
Thus, it means that different traders will interpret the same data and will have different views.
A common myth amongst all the people is that technical analysis is a science to accurately find how much a stock can go up or down, it will rise or fall. But that's not true because technical analysis is an art not a science. Two persons sitting right next to each other will analyze the same price action of a same stock on same chart differently. It may happen that one of them is willing to sell that stock while the other one is willing to buy on the same price.
Hence technical analysis is criticized by a lot of people around the world. While whatever may be the reason to criticize it for them but believe me it also bring a lot of good fortune for a trader who is following his rules and regulations in trading hour.
History of technical analysis.
Well technical analysis is supposed to be originated in the late 18th century by an American generalist Charles Henry Dow.
Charles Dow is referred as the father of the technical analysis.
He is the founder of the first market index of the world "Dow Jones industrial average". He also gave Dow theory which later on became very famous and is now the basis of the modern day technical analysis.
As now, technical analysis has become so famous that whole of our financial system in the world is based on it. Everyday, billions of dollars are invested into the market just after looking some simple price movements. Millions of people make fortune just by trading in the market using this special knowledge, whom we call as traders.
Well we will also discuss about some great traders of all time like Paul Tudor Jones, George Soros and many others. But here we will only talk about the basis of technical analysis.
Actually what technical analysis do for you is that it simply reflects demand and supply of the stock during that time period in while you are analyzing the stock. That's the biggest reason, most of the market participants believe that all human psychology and market sentiments are reflected in the price action of the asset.
As I talked early in the same post that this is an art not science. So, it has its own pros and cons. and now you know those.
So, I hope now you know what technical analysis is and what it is not. And I tried my best to teach you on the same topic.
In my upcoming posts I'll teach you how to use various technical tools available to trade in the market? Keep visiting my blog. Thank you so much!