What is technical analysis
Technical analysis basically has four pillars
1. Technical Indicators
2. Elliot Wave Theory
3. Dow Theory
4. Candle Stick Theory
Technical Analysis by using indicators is basically the study of market data over a period of time taking into account Price and volume..
This study of the historical data is then used to predict future price and market behavior.
This study of historical data is mathematically compounded into what are called technical indicators. All indicators are precisely calculated. However their interpretation is subjective and different people may get different results.
Elliot Wave Theory
Apart from technical indicators , a theory which has also gained vast acceptance is the Elliot wave theory, which is being used extensively now by fund houses.
Some proponents of the Elliot wave theory swear by the accuracy. Such fanatic following has almost evolved into a cult.
The Dow Theory
Then we of course have the very logical and practical DOW theory . This basically forms the basis for all theories for it aligns well with all aspects of the markets.
According to Dow theory, there are three phases of the bull run
Accumulation, participation and the excess phase. Accumulation always comes after the major bear run is over. Fund houses and informed investors participate in the accumulation stage.
The general public participate in the participation and the excess stage. In the excess stage the 1st to get out are the fund houses and the informed investors.
The Japanese Candlestick Theory
Another very important technical theory used in analysis is the candlestick theory.
Candle stick charts originated in Japan by a gentleman named Homma in 1700. The candlestick charts , have certain patterns and convey the emotions of the traders in bullish and bearish scenerios. Although not always correct, the knowledge of the candlestick theory is a good addition in ones knowledge portfolio.