Now, that you have learned how to do Fundamental Research, let’s take a look at Technical Research for making crucial share investment decisions. What we saw above was a fundamental factor responsible for the movement in the share prices. Besides these Fundamental factors there are Technical Factors viz. the
Laws of Demand & Supply
which also could lead to sharp movements in the share prices. These factors work on Mass Psychology and are closely linked to the Human Mind. Under a given set of circumstances, all minds tend to work in the same direction.
So, what exactly is ‘Technical Research’?
Technical Research is a study of the past price action to predict the future price Trends.
This means that the price of a share tells us as to how the share is going to move in the future and any reasons, let it be Fundamental or Technical, that could lead to a rise or a fall in the share prices is reflected in the price of that share. To give a simple example if a company is going to post excellent results, this will be reflected in the share price with a good rise which will be on account of insider buying. Similarly, the opposite of this also is true.
How accurate is Technical Research?
Technical Research is a subject which can successfully identify the beginning of a sharp rise or fall in the share prices. However, it is incorrect to say that technical research can predict the share movements correctly all the times, as at certain times the markets itself are undecided.
Then, why should I choose Technical Research. What are its advantages?
- It is independent of any news or occurrence of events as any of these are reflected in the stock price.
- Most of the Fundamental information such as announcement of Results or any other which affects the price of a share reaches a common Investor the last but an Investor following TA can get early signals based on price movements though he may not know the exact nature of information.
- Since TA is based on Mass Psychology which can change and is fluctuating at times, Technical Research recommends use of Stop-losses which if strictly implemented can save Traders and Investors from a much bigger loss in the future.
To sum it up Technical Research is:
- A study of price charts i.e. past prices in conjunction with the present.
- Works best in stocks that have a mass following.
- Is based on the law of Demand and Supply.
- Depicts the mindset of masses i.e. mass psychology.