How does Technical Analysis Work in the Stock Market?

An Overview of Technical Analysis

Technical Analysis is the key to analyse and predict the price fluctuations of the stock market based on market trends. Many get confused about the technical analysis meaning with fundamental analysis. However, both these techniques are contrary even though both help in analysing the market evaluations.

While technical analysis focuses on the study of past data, price and volume, Fundamental Analysis, on the other hand, caters to analyse financial statements of businesses like their assets, liabilities and earnings, etc. Thus, Technical Analysis can be defined as the method of analysing or forecasting the market trends and price fluctuations of the stock market.

Traders in the stock market are often accustomed to using this charting method so that they can identify the price patterns to further suit their investment horizons and carry out their trades. However, while opting to technically analyse the market trends, you should always count on the history of the security and commodity’s trading patterns to predict the future trends in price and evaluations.

Positive influence by Technical Analysis                   

Technical Analysis has benefited investors to reach both short-term as well as long-term goals. Here are some of the positive impacts which technical analysis have embarked on for traders of the stock market.

1. Covers investments made in all timeframes

Many investors and operators of the stock market are under the impression that Technical Analysis could only be applied for meeting short-term goals. However, note that Technical Analysis can work to cater for all timeframes that are – whether it is short-term finances or long-term trades.

2. Analyses all instruments of the stock market

Technical Analysis is not just applicable to stocks but to other commodities as well. You can also use technical analysis to predict interest rates or forex. However, when it comes to analysing fundamental instruments like assets and liabilities, you must carefully switch between the asset classes to prevent wrong predictions. Even though Technical Analysis could be applied for analysing equities, yet it is best to stick to fundamental analysis to evaluate the equity shares and debt funds.

3. Applied by both individual as well as institutional investors

Even though Technical Analysis is widely used by Individual investors, yet some institutions are accustomed to the use of Technical Analysis. Financial Institutions like Investment banks and other NBFCs have dedicated an entire team to carefully study the market trends and follow up with technical analysis to forecast future prices and rates accurately.

4. Swift and Simple Methodology

Investors in the stocks and shares often take heed to follow up with the price fluctuations operating in the market. Many even seek help from a technical expert who can well analyse and keep up with the on-going market trends. Nowadays, you get many free courses online where you can learn the basics of Technical Analysis and keep yourself updated with the knowledge required in this field. It is very easy to learn if you have a good understanding of accounts and finances. Moreover, nowadays you even get technical analysis software to guide you through the market conditions. All you require is to install and subscribe to such software and learn how to operate it.

5. Derives the Market patterns

With the help of Technical Analysis, you can predict when to enter and exit the market. Many professionals have used this tool to score the market potential and have set rules and guidelines for successful trading in stocks and shares.

Negative Reviews on Technical Analysis

Till now, you have been acquainted with the positive impacts which Technical Analysis has imposed on the investors and traders of stocks and shares. Let us now further take a glance at the drawbacks of technical analysis of the market rates and trends in stocks and shares.

  • Poses threat to investors: Even though technical analysis is one of the most useful tools which you could apply to monitor the market rates, yet it is a highly risky model of the various financial tools. Sometimes it could lead to heavy failures and sometimes it could surprise you with exclusive cash flow. Thus, you have to be prepared to face both failure and success while relying on Technical Analysis.
  • Could be confusing at times: This tool could give mixed signals at times which thus, confuses the traders. The mixed-signal showing “Buy” and “Sell” is often intimidating on part of the investment marketers.
  • Fails to monitor volatile markets: When the market is highly explosive and volatile, the results and predictions shown by technical analysis do not cater to be accurate. Moreover, the illiquidity in market trends and securities also hamper the forecast of technical analysis.

Ways to ace in Technical Analysis

Following are some of the key takeaways to ace in the stock market with the help of technical analysis and avoid failure.

– If you are new to the stock market then the first thing you need to understand the logic behind the technical analysis.

– You will then need to identify and pick a strategy to develop a trading system.

– Before you invest in real capital, make sure you have practised well with a demo account. This can be done by requesting a free trial from the trading account.

– Identify the various securities and volatilities of the market. Check on the illiquid and stable stocks.

– Begin with small investments and slowly expand to bigger investment horizons based on your experience.

– You need to take hold of the correct trading account. You will have to find the right charts on which you can carry out the brokerage patterns based on the security you have purchased.

– Keep up with the tracking of the stocks and trades that are operating in the market.

– Make sure to study the past trends in prices and interest rates that operated in particular stocks and shares in which you have invested.

– Make use of additional software and online tools to improve and analyse stock performances.


Technical Analysis along with Fundamental Analysis could prove to be an effective venture to analyse the stock market exchanges in price and commodities. Make sure to utilize these tools effectively to get the best results in the form of cash flow and avoid costly failures. Assumptions made on the basis of these analytics have often proved to be effective, therefore, do not turn away from the use of these methodologies to track and keep up with the market trends.