How to Learn Technical Analysis of Equity Shares

Technical analysis utilizes price and volume data on a chart.

Buying and selling equity shares can be a confusing process for new investors. Commentators and analysts rarely agree on market conditions and whether or not it is a good time to buy or sell. Technical analysis removes some of the anxiety from the investment process by empowering individual traders to comprehend movements of the stock market. The investor can then decide for himself whether it is a good time to purchase or liquidate shares. Technical analysis utilizes equity share price along with the volume of shares traded to create forecasts.

Things You'll Need

• Strategy guide
• Back-testing software

Instructions

Finding Software

1. Analyze the time frame in which you will trade. Day traders need accurate charting software that updates every trade or every minute. Swing and momentum traders might only require data that is updated daily.

2. Download a variety of trial freeware and shareware charting software programs.

3. Rate each charting software program. Do this according to price, ease of use, amount of indicators, customization of indicators, ability to annotate, drawing tools, whether it uses real-time data or delayed, support and popularity, and the ability to test accuracy of user-defined strategies.

4. Purchase full usage rights or license to a charting software program.

Learning

1. Acquire knowledge of charting and technical analysis indicators. Learn from books printed by reputable publishers or well-known analysts. Some of the topics may include moving averages, trends, momentum, volume analysis, pattern recognition and trend lines.

2. Find a mentor either through the Internet or in person. Suitable teachers should have an established track record and possibly a related degree.

3. Join a trading group. Forums and teams of traders may offer valuable tips and customizations regarding technical indicators.

4. Develop or follow a strategy that suits your personality. Some strategies trade with the trend while others suggest trading against it. One technique may require trading many times per day while another may create trade recommendations only once per month.

Testing

1. Test reliability of technical indicators by using back-testing software. This process involves testing a strategy against historical stock data to determine accuracy.

2. Modify technical indicator parameters to increase precision of entry and exit signals.

3. Ensure the basket of stocks is suitable for your theory. For example, do not allow penny stocks to be tested when the strategy is based on blue chip equity shares.

4. Watch initial stop-loss parameters and the trigger of when to profit-take.

5. Improve upon your technical analysis continually. Analyzing failed trades and the reason for the loss accomplishes this.

Tips & Warnings

• Practice technical analysis until you can confidently make quick trades. Indecision leads to missed opportunities.

• Be wary of e-books, tips and advice when the author cannot be verified.

References

• StockCharts.com: Chart School

Resources

• Investopedia: Technical Analysis: Introduction