Three major Advantages of Technical Analysis in stock market

-Krishna Khatiwada

There are many successful investors who use only technical tools to trade and overlook all other analysis.

Some investors just use candle stick pattern to predict and other use many self-modified complicated tools in technical analysis. The amazing part is that, they are predicting same thing using two totally different approaches and both are successful.

Here in this article we will discuss the major advantages of technical analysis.

1. Technical analysis gives you a proper plan: Trading with the plan is one of important factor for being successful in stock market; every successful investor, trade with a proper plan. If you meet across any Technical Analyst and asked him about his buying plan on any stock he comes up with the proper plan. For example he may say, I am observing ABC stock which is currently trading at Rs 750, so when it crosses a resistance range of Rs 770-790, then I will enter the market and I think it will go up to Rs 850 in next 1 month, and incase if it went down by breaking Rs 770 level then I will exit. With technical analysis you can trade with a proper plan.                                                                                        
2. Provide a trend idea: Market moves in a trend, In NEPSE index, average long-term bull and bear market endure about a period 3 years.Increasing market price attracts new investors, and these energetic people, push the price and makes the trend. Average turnover during a bull market of 2016, was more than Rs 1.5 arba and in current bear market, the average turnover lies around Rs 40 Crore, which proves investors are more attracted during the bull market in developing stock market (where short selling is not allowed).  In technical analysis, investors look for trend and they trade with it. Trading with the trend is considered safest. There are various tools which predict a reversal and continuation of trend in technical analysis, and with the help of these tools investors make their decision. Trend is your friend until it gets bent.                                                   

3. Price reflects present scenario of market: Today’s  price is the best price for the stock, technical analyst never look for undervalued or overvalued price but they talk about over-bought & over-sold price.  In technical analysis, ABC stock with Rs 800 can be over-bought at one time and the same stock at Rs 810 could be a fair price at other time.  Technical analyst never cries about the prices, if the market expressing iron price as gold price, they bought it at gold price. TA believes that, if market is taking Rs 10 worth stock to Rs 50, it won’t stop at just Rs 50; market will make it move higher. Highly accelerated vehicles, gives signal on reversing, as well as takes time to reverse, TA believes in this principle in market as well.   In technical analysis we never try to find the reason for reversing as there could be numerous reasons, we just observe and take necessary action. For T.A, stock should be bought at high price and should be sold at even higher price contrary to concept of buying low and selling high.

Note that, there is no analysis in the world which gives 100% accurate result.