Last Updated on 12/03/2021 by Deepak Singla
Investing in the stock market can be much more rewarding than gambling if you pick the right stocks at the right time. So, how do you determine which is the right stock and when is the right time to buy it? With technical stock market tips in India, you will be able to select companies that give you above-average returns in the medium to long term.
What Is Technical Analysis?
Technical analysis is a disciplined, rule-based approach to tread the gap between intrinsic value and share price. It involves the understanding of chart patterns, indicators, risk management, and even behavioral economics. Technical methods help predict the future price of a stock based on historical data.
Technical analysis is primarily based on price and volume charts for making buy/sell decisions. It also analysis the consumer behavior in terms of both greed and fear, and understanding this is important in technical analysis.
Approach to Technical Analysis for Stock market tips
There are two main approaches to technical analysis in stock market.
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Top-Down Approach
It is when the stocks meet certain technical criteria of the trader, such as a stock which just started trading above its 50-day moving average.
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Bottom-Up Approach
When a trader likes a stock from a fundamental perspective, they may take buy or sell positions in it.
Moving Average Crossover Strategy
Another way of analyzing stocks is by tracking two moving averages of a particular stock price. For example, if you pick the 50-day and the 200-day moving average of a stock, and the 50-day moving average gets above the 200-day, it suggests a potential upside in the stock.
Relative Strength Index (RSI)
This helps you compare the dimensions of gains and losses in a particular stock in the recent past. It is then plotted on a scale of 0-100. The general rule is that if it is above 70 on the scale, then it is overbought and it looks good to short. Likewise, if it is below 30 on the scale, then it is oversold stocks and indicates a good buy.
Moving Average Convergence Divergence (MACD)
The MACD comprises of the fast line, which is the 26-day and the 12-day exponential moving average (the blue line), and the slow line which is the 9-day moving average (the brown line). It’s a buy when the fast line crosses above the slow line, and it’s a sell when the slow line crosses the fast line.
Fibonacci Retracement
This model suggests that stocks retrace by predictable percentages such as 38.2%, 50%, and 61.8%. For example, if a stock price reaches a 38.2% level and bounces, then you can buy it, but if it falls below 38.2%, then it is likely to reach 50%, which is the next support.
Resistance and Support
You may have read or listened to the terms resistance and support many times and know what it is, but, what you did not know was that you can plot these levels yourself. On the line chart of a share price, the daily low prices form the support line and the daily high prices form the resistance line. With our stock market tips in India, you can find the support and resistance levels of stocks.
Trading Volume
The volume refers to the number of shares traded in the market. It helps you understand if a particular price trend is supported by the consumers. Let’s understand this with an example. If the price of a share moves up with more than normal volumes, it suggests that the market supports the rally. On the other side, if the price falls with large volumes of trade, it suggests a downward trend.
Practice Makes Perfect
Now that you know about the different technical analysis tools, it is best to put this knowledge to use. Start off by investing small amounts based on one or more of the above mentioned tools. You can’t perfect technical analysis within a day or two. You will have to be patient try different strategies to know which works for you.
Many online trading platforms allow you the opportunity to trade in the share market with virtual money. This can be a good tool to practice your trading skills without losing any actual money.
Get Your Fundamentals Right
Trading is more about probability and you need to decide which method works for you. Before you begin, gain a foundational understanding of the concepts of technical by reading articles, books, blogs, and taking courses (online or offline).
History repeats and the same goes for the stock market. Technical analysis will help you understand historical stock price data and make predictions based on chart patterns. There are many ways to choose from and you can try your hand at them to know which works for you. Never fall for those who offer spectacular returns in a short time. Few investors make a quick buck and get out.
