Technical Analysis For Long Term Investors

Technical Analysis For Long Term Investors

Share market investors analyse market on the basis of historical data and predicts future prices.
There are two main types of analysis to study the stocks for buying:
A. Fundamental analysis
B. Technical analysis
Fundamental analysis is related to study of financial data of the company, industry and economy.
Technical analysis or ‘charting’ is the study of behavior of market participants in the form of price
and volume patterns on the stock chart.

Q: Why and how does technical analysis works?

A: Despite of advances in science, human mind is same as it was 50000 years ago.
Human behaves in certain predictable manners which reflects in the price patterns on the Stock’s
Chart, an experienced chartist can predict probable future behavior and stock price based on the
past and present behavior patterns on the chart.

Q: Why should long term investors learn technical analysis?

A:While Fundamental analysis helps us to choose strong companies, technical analysis helps in
guiding Entry and Exit timing. Combination of both the methods has potential to give better
investment returns.

Q: What are commonly used technical indicators?

A:

  • Price action- Candles, Volumes, Trendlines, Support and resistance,
  • Moving average
  • Relative Strength Index (RSI)
  • Ichimoku
  • Bollinger Band (BB)

Q.What is moving average ?

A- Moving average is trend indicator and used frequently by technical analysts.
It denotes a stock’s average price over a certain period of time. For example 50 day simple
moving average is the sum of the closing price of the stock for last 50 days divided by 50. Oldest
value is dropped and newest is added.
It is plotted on the chart over the stock price and appears as a line. It is ready available on all
Charting platforms.

Q: Which are the commonly used moving average for long term investing.

A: Commonly 50, 200 DMA are used for long term investment analysis.

Q: Which time frame on charts should one use for long term investment analysis?

A: Daily and weekly charts.

Q: What is a Buy signal for long term investors based on 50 and 200 DMA?

A: When 50 DMA crosses 200 DMA from BELOW upwards, it is a buy signal.

Q: What is a Sell signal for long term investors based on 50 DMA and 200 DMA ?

A: When 50 DMA crosses 200 DMA from ABOVE downward, it is a sell signal.

Q. When do we call market is in a bear phase based on moving average?

A: When stock price moves below 200 DMA it is assumed to be in a bear phase.
Similarly Prices above 200 DMA in a trending market can be a good guide for continue holding a stock in
portfolio for long period.

Q: Generally good stock will always be on rising trend , which indicator should be used to add good Stock for long term?

A: Buy on dips. 50DMA can act as support to good stocks. Usually price bounce from 50 DMA.
Similarly 20, and 100 moving average can also be watched for support for dip buying in
fundamentally good stock – one need to find out what works best for which stock.

Q: Is 50 DMA, 200 DMA is fool proof way of analyzing stock?

A: NOTHING is foolproof. All is game of probability.
EXPERIENCE is very important to understand mind of market. We cannot find single person
who is correct 100% in market. If one is correct at 70% times it is a great achievement.

Q: How to identify demand and supply zone on charts for long term investment?

A: PRICE ACTION.
We need to use past price action to find demand and supply zones on the chart.
People’s reaction to certain price level determines support and resistance.

Q: What is the use of volume of shares traded if we are using 50DMA OR 200DMA?

A: We need to use multiple parameters simultaneously.
Volume has also significance to understand strength of trend.

Q: What indicators can be used to determine oversold or overbought situation in a stock or market?

A: RSI and Stochastic can tell it.

Q:Which 4 indicators for technical analysis will you suggest to new members, for detail study and use for maximum benefit for investing?

A:Price Action

  • Ichimoku
  • MA
  • RSI
  • BB

Q: How many indicators are enough to confirm the trend? Price action, Moving averages, RSI, MACD? What is best combination?

A: BEST is elusive. Find which is suitable for you.
ALWAYS use Combination of Fundamental and Technical analysis.
Price Action, Ichimoku, BB, RSI , Stocahstic, Volume, Supertrend. MA.
PE ratio, International market trends, Politics at centre And most important indicator. GUT
FEELING.

Q : What should be in general entry n exit strategy for long term investor ?

A: It depends upon various factors. Broader Market , Industry and business and also investors goal,
risk profile. It varies with each company and each investor.

Q: Which are the free charting platforms with inbuilt commonly used indicators?

A: Trade Tiger, investing.com and Chartink.com.