Market Overview

Why is Stock Chart Technical Analysis Important?

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When it comes to investing in stocks, it is important that the investor is capable of conducting a thorough technical analysis of stock charts. Technical analysis is a term used to define the process of forecasting future price movements based on the past price movements within stock charts. It is with the help of technical analysis that investors are able to make financial decisions of buying, holding, or selling stocks.

Although technical analysis doesn’t make accurate predictions, it helps investors anticipate the future. Let’s say if a person is willing to invest in a stock, they will first select a stock and analyze its past price fluctuations to see whether it will offer fruitful results in the future or not.

Past and Current Stock Price Prediction

The purpose of technical analysis is to help the investor make a more financially sound investment decision. The price is the key to success in stock market investment. The supply and demand of stocks all depend upon technical analysis. By evaluating the history of stock prices, you get a future reading of what a particular stock would be priced at.

When analyzing the stock charts, you can create price charts that help determine your next move. With the help of technical analysis, you are able to identify the following factors:

  • Instability in the stock prices in the past and present.
  • Stock’s ability and value compared to the overall market
  • Price fluctuations and stock value before and after important events.
  • History of volume and trading levels.

Easily Identify Support and Resistance Levels

By performing stock chart technical analysis, investors are able to determine support and resistance levels. These levels define the periods of congestion in a stock chart where the prices of stocks fluctuate within a limited range for a long period of time.

When you are able to identify support and resistance levels, you can make better decisions whether to invest in a particular stock or not. When prices break the barrier, it means that the supply and demand are in a good state.

Helps Time Entry Points

Another benefit of stock chart technical analysis is that it helps investors’ time entry points. With the help of technical analysis, you know exactly when to time your action. You are also able to understand demand and supply levels, and breakouts to make better decisions. Buying close to support levels or a breakout above resistance helps you earn greater returns on your investment.

Easily Spot Trends

If you want to invest in stocks, you must be well aware of the current market trends. By conducting technical analysis of stock charts, you will be able to learn about short term and long term trends which will help you take informed investment decisions.

 

In order to invest in stocks, you must be aware of the historical and current stock trends and price fluctuations. And with the help of technical analysis, you get all the information you need to make a sound decision that doesn’t make you lose money.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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