hi there holly shields here for kalkine media
let's talk technical analysis what are the components but before that please sub to
our channel and press the bell icon to get notified on our latest videos
technical analysis is a vast and comprehensive approach to analyze a trend of security or any
other asset that is freely tradable in a market it is a disciplined approach which helps to identify
profitable opportunities to trade underlying instruments technical analysis is a totally
different thing from fundamental analysis as the format uses historical price and volume data as
its main input and the latter uses financial statements and other fundamental data despite
the two being diverse approaches both forms of analysis attempt to answer a single question
whether the underlying security is likely to move up in price or fall to effectively apply technical
analysis an investor needs to understand the basic components to help make an effective approach
now for some of the components of technical analysis first up is price and volume data
like fundamental analysis it incorporates a company's financial statements industry's outlook
and economic conditions technical analysis primarily uses two data sets i.e price and
volume these are the most essential components of technical analysis without which the analysis
could not be performed price data consists of actual prices at which the buyers and sellers of
that particular security agreed to transact there are many transactions that take place throughout
the day week and month therefore these prices are regularly tracked and analyzed to gauge the trend
of the security volume also plays a key role and is a measure of the degree of participation
from masses in underlying price change volume data measures how many shares or contracts have been
traded in a specific time frame next up is charts the price and volume data comes in humongous
volumes as there are countless transactions taking place every day therefore it becomes a tedious job
to analyze all the data in its raw or even tabular form one way to overcome this problem is to
summarize this data and plot it on a chart which gives a graphical representation of that data
this visual representation of price and volume data then becomes the basis of technical analysis
the prices are summarized in the form of four data points namely open high low and
close price for the security within a specific time frame these four data points incorporate
all the prices at which a transaction took place within the respective time frame and the analysis
is performed on these four data points eliminating the need to analyze every single transaction
on this chart numerous studies or tools or indicators are also plotted to perform an even
deeper analysis another component is indicators or tools an indicator is the basic mathematical
calculation which is performed on the price and or volume it helps to interpret the same data from a
different dimension for example looking purely at price charts it would be difficult to calculate
how far the prices have trended and deviated from their mean this calculation can be done by
using an indicator that calculates the mean price and then compares how far the price has deviated
from the mean this could be used for a different form of analysis such as gauging the overbought
oversold levels technical tools such as trend lines fibonacci retracements and
projections horizontal support and resistance lines etc are very commonly plotted on the price
chart to find trends support and resistance as well as projected targets all these indicators
and tools when plotted on a price chart interpret the data in a graphical visual form which is not
achievable on the data set but in a tabular form and lastly remember it's art as well as science
some of the components of technical analysis are subjective in nature and some are objective
therefore the subjective components are more of a set of an art and analysis of which is to a great
extent dependent on the knowledge and experience of an investor an example could be a chart pattern
analysis in the financial markets rarely one would see a picture-perfect chart pattern which is often
showcased in textbooks therefore an investor needs to use his experience and judgment in engaging the
legitimacy of the chart pattern depending upon the location chart volume and data how much the
margin of deformity of the pattern is allowed by the investor to still consider it valid there are
objective components of technical analysis as well which help to remove ambiguity from the analysis
for example to gauge the current short-term trend an investor can plot a 20-day moving average of
price this setup has only two implications if the current price is above the average
the trend is interpreted to be upwards and vice versa therefore plotting a moving
average helps to remove the subjectivity in trend analysis and that concludes our list
if you like this info please like share and subscribe comment on the video give our channel a
sub and while you're at it press that bell icon for the latest notifications free updates and
info log on to our website at kalkine media.com this has been holly shields for kalkine media