How Can Technical Analysis Help in Market Research
Technical analysis is a tool which helps researchers conduct market research. Investors usually look at the fundamentals of the stocks, such as sales, valuation, and market trends, to make investment decisions. But these factors do not reflect the market pricing. On the other hand, technical analysis helps researchers and investors predict the likely future prices of stocks. It involves the evaluation of past data of securities, especially stocks concerning their price and volume. It helps investors and traders make evidence-based strategies and decisions. This article will tell you how technical analysis can help in market research.
What is technical analysis?
Technical analysis is a useful tool in market research that evaluates investment opportunities. Researchers gather statistical data from the trading activities and identify the trends and patterns in the price and volume of stocks. The fundamental market research analysis only provides information on stock valuation based on business performance such as sales and profits. But technical analysis concentrates on the evaluation of price and volume. The technical analysis states that historical data on trading activities and price variations of security, such as stocks, are valuable predictors of future changes in the prices of securities. Still if you have any confusion related to the technical analysis, you can hire writers from MBA dissertation writing services.
How technical analysis can help in market research?
Assessment of trading activities based on the company’s financials is limited in predicting the future trends in prices of the securities, especially stocks. Technical analysis tools complement the fundamental analysis and inform the investors about the changes in the price of securities. Researchers use technical analysis tools to evaluate the impact of supply and demand on the prices, volume, and volatility of stocks. The underlying notion behind this analytical technique is that historical data of trading activities and price variations of securities help forecast future price changes. It can help researchers assess the strengths and weaknesses of securities in relation to market fluctuations. The insights gathered from this analysis help market researchers determine the securities’ actual value.
- Price Charts
Researchers make price charts to predict the price movement of securities in the market. There are two primary variables required for technical analysis. One variable is the time frame, and the other variable is the specific technical indicators. The time frame for price charts can range from minutes to months and years. Price charts for market research are valuable for retail market research and can inform retailers’ decision-making. It is also helpful for equity analysts.
What aspects of the market can be determined with the help of technical analysis?
Technical analysis can help researchers analyse securities consisting of past data such as:
- Fixed income
- Commodities in forex markets
- Currency Pairs
Researchers can forecast the future price movements of the above-mentioned securities by analysing their past price and volume data. Researchers can identify and predict price changes in the securities over a period and inform the traders about the future changes.
What are the technical indicators in technical analysis?
The usage of technical indicators in technical analysis depends upon the aims and objectives of the research. Researchers can use technical indicators to identify the strengths and weaknesses of a security price trend. Similarly, they can also analyse the probable continuation of those trends in the future. The most frequent technical indicators in analysis of securities are the following:
- Moving Averages
- Momentum Indicators
- Price Trends
- Chart Patterns
- Volume indicators
What are the two different approaches for doing technical analysis?
There are two approaches involved in the technical analysis, which are as follows:
- Top-Down Approach
- Bottom-Up Approach
Short-term traders prefer the top-down approach, whereas long-term traders prefer the bottom-up approach.
- Top-Down Approach
The top-down approach takes a broad overview of macroeconomic factors before evaluating the individual securities. The top-down approach in market research first analyses the economy and incrementally moves towards industries and companies’ stocks. These assessments concern the traders’ short-term goals than the long-term evaluations.
- Bottom-Up Approach
The bottom-up approach is the opposite of the top-down approach, concentrating on individual stocks. The bottom-up approach in technical analysis seeks to identify the possible entry points of a stock. Researchers use a bottom-up approach and historical data of a particular stock to predict its future prices and changes. This strategy is helpful for investors seeking to know about their long-term investments‘ value.
What are the underlying assumptions of technical analysis?
- Price is integral
The fundamental assumption of technical analysis is that price movement is essential in understanding the future valuations of securities. Researchers assume that price is an accurate reflection of trends and patterns in the security market. Price is an important notion for signifying the broader market psychology. But market analysts criticise the overreliance on price as an indicator of security strengths and weaknesses.
- Historical data and Trend identification
Market analysts who use technical analysis assume that prices always move in trends. The analysts assume that prices move in trends despite variations in the time frames and markets. The fundamental notion is that a stock’s future price movements are a continuation of past trends. Researchers assume that a stock will not diverge from the trend.
The repetition of historical trends
According to technical analysts, history repeats itself. They argue that market psychology is based on the greed and fear of investors and these emotions are highly predictable. The fluctuations in the prices of the securities are repeatable. Market researchers use chart patterns to identify the latest trends in security markets based on a period. They analyse the market emotions and ultimately predict the continuation of past trends. This technique ensures that price movements will continue into the future and repeat themselves.
The technical analysis complements the fundamental analysis in market research. It is an effective tool for analysing the price movement of securities. Researchers can use the past data and predict the future price movements of commodities. Investors who want to understand their investments’ value benefit from the technical analysis. They can understand the potential investment opportunities in stocks and evaluate their pros and cons.