Technical Chart Analysis Of Indian Stocks 2019 – Complete Guide

technical analysis of stocks

Technical Chart Analysis Of Indian Stocks A Complete Guide

Consider a situation: a person, X wants to invest his savings in stocks and other securities but has no idea whatsoever about the jargon of Indian stock markets.

Rings a bell? Read on.

If you are a beginner like Mr. X who wishes to invest but do not know much about investing, then consider this article to be tailor-made for you. I’ll explain all critical terms related to stock markets in a layman’s language here. Let’s begin!

What is a Stock Chart?

Technical Chart Analysis Of Indian Stocks

A Stock Chart is the basic tool you must know how to use in order to understand the patterns and behaviors of different securities.

This understanding will ensure that you know which security to invest in, when to buy and when to sell it.

In literal terms, a stock chart can be defined as a series of prices plotted on a graph for a specific timeframe. The Y-Axis i.e. the vertical axis is usually used to represent the price scale and the X-Axis i.e. the horizontal axis is used to represent the timeframe.

Also, a word extensively used in this article as well as the stock market is “security”. A security can refer to any financial instrument which can be traded freely in the market for the purposes of both long-term and short-term investments.

It can include anything ranging from stocks, bonds to commodities etc.

What are Trendlines?

Technical Chart Analysis Of Indian Stocks - trendlines

In understanding stock charts and their patterns and behaviors, trendlines play a crucial role.

In simple words, trendlines are those lines which are used to depict the rise or fall in stock prices on a graph. They signify what is known as the price pattern.

By following a trendline sincerely, one can recognize a particular pattern of price movement for that particular security.

Broadly, there are two types of patterns:

  • Reversal Pattern: This pattern occurs when a price pattern takes a turn in the opposite direction of existing pattern.
  • Continuation Pattern: This pattern occurs when the trendline continues to move in the existing direction.

Experts and even the common man like you and I can effectively use stock charts, trendlines and price patterns to examine the current stock market situation in India.

What is up with Bulls and Bears in the Indian stock market?

Bull market. Bear market. Bullish. Bearish.

What is up with the Indian stock market? Are they selling bulls and bears now?

Obviously not!

On a more serious note, you must have heard the terms “bull” and “bear” pretty much consistently in debates surrounding investing and stock markets.

And because you’re willing to invest, it is important that you get to know the significance of these two terms.

The expressions “bull” and “bear” are utilized to portray the current market situation i.e. whether it is appreciating or depreciating respectively.

Basically, a bull market depicts a market which is on the rise and is appreciating continuously. It is signified by a sustained rise in security prices.

Typically, this is considered an ideal time for the short-term investor to sell his/her securities.  

On the other hand, a bear market is one that is depreciating continuously. It is signified by a continuous decline in security prices. Typically, this is considered an ideal time to buy securities, but only if they are expected to perform better in the future.

Three Golden Tips for Beginners to do Technical Chart Analysis Of Indian Stocks

Before we dive into stock charts, here are a few basic tips for beginners to keep in mind when they actually start investing:

Research

Do complete research before finalizing an organization in which you want to invest. You must look into an organization’s history and future plans both. Also, you ought to comprehend the organization’s long-term plans, expansion plans, owners etc.

Diversify

Diversify your portfolio. Try to invest in a variety of securities in order to lower your overall risk exposure. This goes well with saying, “Don’t put all your eggs in one basket”.

If you have a portfolio which consists of a wide range of securities, it will work as a shield against huge losses for you.

Stable Returns

Initially, look for stable returns rather than investing aggressively. I know, we all want to multiply our money quickly but patience is the key to smart and fruitful investing.

How to do Technical Chart Analysis Of Indian Stocks?

Deciding which security to invest in, when to buy it and when to sell it can prove to be very difficult for beginners.

Understanding stock charts is the initial move towards progress. As usual, Bachat is on the rescue for beginners with its amateur’s guide on the best way to read a stock chart.

In the article, I’ll explain the very basic essential tips for reading a stock chart of an individual stock.

Distinguish the trendline

Identifying a pattern or trendline is the first task you must learn.

You must learn to see which way the trendline is going and what pattern is it indicating.

If the trendline is going upwards, it means that the share prices are appreciating and the market is in a bullish state.

However, you must not get excited at this sight and must compose yourself before you take any impulsive action to buy/sell the concerned security.

This is because a single rise does not offer a solid foundation of the market’s condition and future behavior.

It is important you understand that trendlines often make dips and jumps due to a number of factors.

These factors could be micro or macro in nature.

Micro factors may include the particular company’s personal circumstances and situations.

For example, 6 months ago, Infosys witnessed a huge fall in its share price because its financial officer MD Ranganath resigned after serving for tenure of over 17 years.

On the other hand, macro factors include factors which affect the whole economy. For example, when the Lok Sabha Election results, 2019 were about to be announced, the Indian stock market shot up dramatically.

Support and Resistance Levels

Following the trendline, the next thing you must know how to understand and analyze are the support and resistance levels of a particular stock.

Every stock chart which has been plotted over an extended timeframe depicts a support and resistance price level.

Don’t resist, I’ll support you in understanding this concept! (Pun intended)

Jokes apart, these two are levels or rather, you can understand them as boundaries within which a stock’s price movement occurs.

Support level implies the bottom boundary whereas resistance level implies the top boundary.

These two levels simply suggest that a stock’s price is not likely to fall below its support level and likewise, it’s not likely to rise beyond its resistance level.

You can visualize the stock prices as a ball alternating between the two boundaries for a better understanding.

However, it is essential to keep in mind that these are just ‘predictions’ which are made by technical analysts from time to time and therefore can prove to be wrong.

For example, when the prices shot up during the announcement of the Lok Sabha Elections 2019’s results, many securities’ prices went way beyond their resistance levels.

Support and resistance levels go a long way in telling a short-term investor when to buy and when to sell a security.

When the price of a security reaches its support level (i.e. predicted bottom-most level), it is believed that the market is currently bearish in nature. Hence, it is considered an ideal time to buy that security.

Similarly, when the price of a security reaches its resistance level (i.e. predicted top-most level), it is believed that the market is currently bullish in nature.

Hence, it is considered an ideal time to sell that security.

Understanding this concept will help to choose you when to buy or sell a security. Keep in mind, however, that it’s all based on predictions and won’t give you a precise idea about what to do.

You’ll need to utilize your very own understanding and judgment to decide your action.

I know it’s a lot to take in. Don’t panic and read this point again to get a clearer understanding of support and resistance levels.

Technical Chart Analysis Of Indian Stocks: Historic Trading Volumes

Volume. What does volume of trade mean while conducting technical chart analysis of Indian stocks?

Well, in the simplest terms, volume means the number of transactions in a particular security which, taken place at a particular point of time, irrespective of buying or selling transactions.

At the base of the X-Axis (i.e. the horizontal axis) of the graph, you can see some little, vertical lines. These depict the volume of that particular security at a particular point of time.

The volume usually increases dramatically when there is significant news (positive or negative) about the organization.

At a point when the volume is expanding, it can likewise move the price of the stock rapidly.

With high volumes persisting in the market, you can be witness greater ease in buying and selling stocks. This is because if a lot of people are trading that day, you will find a buyer/seller quite quickly.

I hope this article helped you to uncover the meaning of some most commonly used terms in the stock market. Start investing today and multiply your money magically!

Note: This article only covers the basic essential information needed for investing and is not meant to be used as a guide for expert technical analysis.

What is a stock chart?

In literal terms, a stock chart can be defined as a series of prices plotted on a graph for a specific timeframe. The Y-Axis i.e. the vertical axis is usually used to represent the price scale and the X-Axis i.e. the horizontal axis is used to represent the timeframe.

What are trend lines?

In simple words, trendlines are those lines which are used to depict the rise or fall in stock prices on a graph. They signify what is known as the price pattern.

What are support and resistance levels?

You can look at them as boundaries within which a stock’s price movement occurs. Support level implies the bottom boundary whereas resistance level implies the top boundary. These two levels simply suggest that a stock’s price is not likely to fall below its support level and likewise, it’s not likely to rise beyond its resistance level.


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