This article explains the basics of Technical analysis and the assumptions to be made in Technical analysis of shares.

Technical analysis deals with the direction of price movement. A technical analyst should look at basic fundamentals of a scrip. A fundamentally strong scrip may be technically weak. It is always better to buy a good scrip at a fair price than buying a great scrip at a huge price. The purpose of technical analysis is to enter at the early stage of rise and exit from the scrip when it peaks out. Technical analysis helps to time the market efficiently. When technical analysis is combined with fundamentals it produces great results.

Technical analysis is the process of identifying trend reversal at the early stage and to ride the trend until there is a trend reversal. The first work of a technical analyst is to spot the reversal of direction and the next work is to monitor the continuation of trend. The final task is to come out of the scrip when he finds that the trend is going to reverse.

Different technical indicators are available to predict the price movement. Each indicator has different levels of efficiency. Technical analysis of a scrip can be done for intra day, end of day and even weeks. For performing technical analysis on a scrip price and volume are the important inputs. The main advantage of technical analysis is that it can be applied in commodities, metals, futures and all other markets.

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Assumptions

When dealing with Technical analysis one must keep in mind some basic assumptions. Let me point out.

Market discounts everything
A share price quotes comprises of hopes, fear, information and the strength of the company. So when we deal with technicals it also encloses the fundamentals.

Market moves in a Trend
This is a very important assumption. Market always moves in a trend but the time period may vary. Technical analyst should always believe in this. Market always moves in a pattern and not randomly. If the market has been moving in random way then technical analysis would not have survived successfully for these many years.

History repeats itself
Human psychology does not change. During Bull markets mass psychology drives price upwards and during Bear markets the opposite occurs. In the same way mistakes committed by traders also repeats again and again.
So be an efficient trader and turn all the crisis into opportunities.