Many of my friends ask me, how exactly I do technical analysis. Frankly speaking, when I started investing I wasn’t aware of these jargons like Technical/Fundamental analysis. I mean, I just used to do my own calculation and invest. I was not aware that, whatever I was doing that is called as Technical Analysis. After some time I came to know about that. And when I did my SIP (Summer Internship Program) in Geojit, I did Technical Analysis as my project, and came to know lot about Technical Analysis.
See investment/trading strategy will different in different situations depending upon the individual. For example when I started trading last year I used to aim for 40% -50% returns and then sell the stocks. But now I can’t do that. Now I only aim for 15% - 20%. Since at that time market was in so called “BULL” trend and now it’s in “BEARISH” or “RANGE BOUND” trend. Again its purely perspective. This is specifically my idea. Many people may agree or disagree. Even I also believe that every individuals thinking is different from each other. Everybody follow different methods of investment. And they should, otherwise in the market there will not be any transaction if everybody started thinking alike. As I am a short term investor/ trader, my strategy is different from the long term investor.
Now coming to my initial days of investment, I used to observe a lot graphs. Particularly in rediffmail.com. According to me rediff is the best site for beginners. And in addition to that I used to read lot of experts views about particular stocks, in which I wanted to invest. For any particular stock what the experts are saying in many websites? And then I do my own research about that stock.
I used to check out what is the status of a particular stock. I mean in technical terms, whether the stock is in bull or bear trend. Now question comes that how will anybody come to know that the stock is in bull/bear trend? For that I need you people to look at below graph. Before that, Technical analysis is full of graphs so be ready for graph analysis guys. According to me this is the basic funda of Technical Analysis.
See in bull trend, next day’s high and low will be greater than the previous day’s high and low respectively. That means, even if market closes its lower end also you should not be in a loss, if you purchased it in low levels of the previous day. Traders or investors should enter in this kind of market. But there little catch in this also. Just check out, when was the stock previously crossed this level, whether it crossed this level successfully or not, till what level it can grow like this? This is what is called as resistance level. Means whether stock is able to cross this level or selling pressure is there (will give the details about resistance and support in later parts). And you must decide the exit before the entrance. I mean before investing, first you decide at what level you want to sell the stock.
Now coming to bearish trend,
See in this kind of market next day’s high and low will be less than the previous day’s high and low respectively. Normal investor should not enter this kind of market thinking that price of the stock is much lower than its peak levels (Experts or experience people who used to trade in F & O segment they take short position by short selling the stock at higher levels and buying at lower levels). Normal trader needs check when will be the down trend of the stock is going to end. And that’s what support level. Means majority of time stock at this level has a support means there is very little chance that a stock is going to break this level and go below this. So you have to wait for this level and enter at this level and come out (sell off) at resistance level.
One important thing of this technical analysis or bull/bear trend or support and resistance level is timing. All are specifically for a time period. You can’t expect all the time analysis is going to be same.
For your reference I am posting a practical chart of SBI.
See from June to December, the stock was in bull trend after that it was in bearish trend and now in couple months stock is in range bound. So ideally investors should enter in June and exit in December. And as I told investors must be careful of not entering in the period of December to June period of 2008.
Will be continued…
Keep reading…
Keep investing…
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