Today, we are living in an
age of internet. Knowledge from various sources is at our doorstep with few
simple clicks. I believe mere availability of tremendous knowledge is not a
need of time, we should select among them to reach our goal in short time as we
say “Time is precious”.
There are lots of tools/indicators available today
to carry out technical analysis on charts. Traders and researchers develop
different type of tools day by day to lead in the quest. While approaching for
new tools we forget the basic idea that by using those tools we just wanted to
trace the psychology of markets.
We should choose among the available
tools/indicators to come out with a sound result and low risk decision. We should
follow a predefined methodology in deciding which tool to use at what time?
As per my experience and industry specific standards
the process should involve following steps:-
Step 1- Define the basic trend of security
Step 2- Drawing trend lines with important support
and resistance price levels for future reference.
Step 3- Incorporating short term, medium term and
longer term moving averages on the price chart to help us get a better
perspective of the price behavior.
Step 4- Determining price levels using the
retracement theory.
Step 5- Adding indicators- to actually “tell” us
what to do with the security, i.e. whether to buy or sell.
Playing in stock market is a game of probabilities;
through analysis we tend to increase our probabilities of success. To arrive at
the meaningful analysis we should combine different tools in a pipeline; one
after another. Otherwise availability of different tools will only lead to
confusion nothing less or more than that!
