Technical analysis is the study of the stock volumes and prices from the past, to predict the behaviour of the stocks in the future. An analysis is carried out to evaluate all the investments in the stocks and recognize better opportunities based on studying the graphs and charts of the trading activities. Technical analysis is important for the traders to gain a perspective on the performances of the stocks and base their trading decisions on some historic data or repetitive patterns.
Technical analysis, however, is different from the fundamental analysis. In fundamental analysis, the performance parameters of business, like financial statements, prediction of the prices, production and sales and many such factors are analysed, based on which the company carries out stock market-related decisions. While in technical analysis, merely the prices of the stocks during different time zones and the movement of volume of the stocks matter. Hence these two are contradictory to one another.
Technical analysis of the stock market is sometimes referred to as gambling. However, this is not the actual case. Gambling is risking something of value, that you own, to the expectation of gaining something of more value in return. Gambling means something which doesn’t have a certain outcome. However, this is not true when it comes to technical analysis. Gambling does not have any particular method to understand the results as there are risk and uncertainty. We can not predict how we will gamble. Throwing the dice, shuffling the cards or roulettes can bring any sort of outcome and there is no way to study the outcomes. However, this is different from technical analysis. There are few scientific ways a trader can carry out the technical analysis, which will help him in taking the decisions to buy the stocks cheaper and sell them at a higher price, thus gaining the profits.
- Understanding and studying the patterns based on logic and reasoning.
- Analyse the price fluctuations in the market using the demand and supply of respective trades.
- Analysing the trend and behaviours of different stocks from historic data up to its future forecasting.
Thus, technical analysis is not gambling in real sense. It is a scientific method of predicting the behavior of stocks and carrying out decision making.