According to Investopedia Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. Those who wants to start learning technical analysis a book can be the best resource. That is why I want to shortlist 5 best books on Technical Analysis for beginners which is relevant for Indian Stock Market also.
There are two kinds of broad analysis investors do for investing in the stock market. One is fundamental analysis which is based on earnings and sales. The another is technical analysis which is based on stock price and volume. There is a combination of both called Technofunda which is used by many investors now a days. The mixing of technical and fundamental in Technofunda approach is dependent on the individual investors’ perspective and analysis.
Technical analysis is mostly used by short term traders and investors but can be used for higher time frame also. It can be used for trading of derivative, forex and commodities also. Before going into the books let’s learn brief about what is technical analysis, assumptions and some limitations.
Common Assumptions Made on Technical Analysis
1. Everything gets limited by market:
Technical investigators accept that everything what a company does is reflected into the stock price. This perspective is similar with the Efficient Markets Hypothesis (EMH) which expects a comparable decision about costs. The main thing remaining is the analysis of value developments, which technical examiners see as the result of gracefully and interest for a specific stock in the market.
2. Price follows a Trend:
Technical experts anticipate that price, identified by a trendlines or price action that highlights the price movement in a specific manner. As such, a stock is bound to proceed with a past pattern than move sporadically. Most technical exchanging systems depend on this assumption.
3. History always repeats itself:
Technical experts accept that history will in general recurrent itself because basic feelings of people remains same through the ages such as greed and fear. Technical analysis utilizes graph examples to examine these feelings and so their behaviour and resulting in market developments to get patterns. While numerous types of technical analysis have been utilized for more than a century, they are still accepted to be significant.
4. Utilization of Technical Analysis:
Technical Analysis is the process of forecasting the movement of the price that is basically for the forces of demand and supply. In a simpler form, it is the research of demand and supply, which is reflecting on the market price of the security. It is generally used on pricing strategy but sometimes beside the price, the numbers of trading volume or open interest figures.
Several ways and patterns have been discovered for practicing trade based on technical analysis. Some indicators focus on the current marketing trend, whereas, some indicators focus on the potency of the market trend and how it’s been continued. Generally used indicators in trade are channels, moving averages, and trend lines. Other types of indicators are:
- Price trends
- Patterns of charts
- Level of support and resistance
Limitations of Technical Analysis:
- According to some analysts that nobody should expect any actionable information to be mentioned in any past data or record.
- Secondly, it is also considered that whatever happened in the past may or may not take place in the future. So, studying price patterns may not be considered as obvious practice and hence can be ignored.
- Thirdly, there are many trader practices technical analysis where they place orders with a broker to sell or buy the commodities when the price of it reaches a certain desired stage, and like this, if many traders follow this there will be selling orders, which will gradually decrease the level of stock and becomes obvious regarding the anticipation of trader’s movement.
- Finally, with the decrease in price, other traders will also follow the same path, reinforcing the trend’s strength. This process of sale may hamper and be considered to be for self benefits and not companies. It creates chaos, disturbance in the company’s harmony and purpose of business.
Now there are many books available where people can get their clear vision on technical analysis and how it’s been implemented. Here is 5 best books on technical Analysis for beginners in Indian stock market which I feel can be very useful.
1. Technical Analysis of the Financial Markets
Technical Analysis of the Financial Markets is the introduction of books having the basic concepts of technical analysis for the beginner but it also provides high knowledge in detail and on advanced version too.
The book is a founding stone for any prospective technical analyst written by John J Murphy. Mr. Murphy has more than 40 years of experience in technical analysis on the Financial Market and therefore, explains the complete subject in-depth and very clear manner, which helps the reader to understand the concept thoroughly.
This book teaches the readers from importance of technical analysis while investing to a vast range of topics ranging from understanding indicators in the markets to reading charts. The book especially concentrates on trends in a future market scenario, which again helps the readers to chart out the strategies for investing accordingly.
2. Japanese Candlestick Charting Techniques
Japanese Candlestick Charting Techniques written by Steve Nison describes the most commonly used tools of technical analysis which is candlestick charting. It has become popular in the west much later. This book provides thorough knowledge on the topic and the details of all the candlestick charts that are followed by the present-day traders.
Japanese candles with other technical apparatuses can make ground-breaking cooperative energy of procedures; beginners will discover how powerful candle outlines are as an independent graphing technique.
In straightforward language, this book conveys the story of the creator’s long stretches of study, research and reasonable involvement with this undeniably well known and dynamic way to deal with showcase analysis.
3. Getting Started in Technical Analysis
Getting started in technical analysis is the perfect book to start learning Technical analysis. Here, you will get to know about all the patterns, charts, the statistical representations, and the indicators. It helps to gain knowledge more about the entry point and exit point of trading, important factors for becoming a successful trader as well as how to develop a successful trading system.
This is all-in-one books where you can get all the factors related to the successful implementation of technical analysis. The book’s various models and clear, straightforward clarifications give a strong structure to utilizing the technical analysis to improve, more educated venture choices, and as the reason for mechanical exchanging frameworks.
Alongside Schwager’s significant exchanging rules and market perceptions separated from long stretches of certifiable exchanging experience.
Getting Started in Technical Analysis offers in-depth coverage of:
- Types of charts-bar, close-only, point-and-figure, candlestick.
- Chart patterns-one-day, continuation, top and bottom formations, the importance of failed signals.
- Trading systems-trend-following, counter-trend, pattern recognition.
- Charting and analysis software-price data issues, time frame/trading style considerations, software research.
- Planned trading approach-trading philosophy, choosing markets, risk control strategies, establishing a trading routine.
4. Technical Analysis Explained
Technical Analysis Explained by author Martin J Pring is called as the Bible of technical analysis. Martin Pring is well renowned in this field and he is popular in his straight talk style for analysis of stocks.
This book about all the details regarding technical analysis in a way much simpler form, which helps the readers to understand easily. It covers important aspects like trading psychology. This book emphasizes the aspect “why” rather than “how” of technical analysis. It showers deep knowledge of technical analysis.
This well-organized guide gets you started right away with:
- A step-by-step program for making technical analysis part of your investing routine
- Practical strategies for using today’s most sophisticated investment tools and techniques
- An insider’s look at the psychology of investors aimed at mastering your emotions
5. Technical Analysis Using Multiple Timeframes
Technical Analysis Using Multiple Timeframes projects the importance of applying technical analysis over numerous timeframes to pick the trade correctly with high chances of success. It not only depicts timeframes but also goes beyond the particular topic and includes stop-loss order placement, choosing of price-target, and various related topics.
Content incorporates data about phases of the market and how to analyze them on various periods, section – leave standards, and hazard the board. This book doesn’t have an exchanging framework set up all things considered yet rather plots some significant focuses which can assist you with developing one.
So, before stepping into the financial market one must know all the know-how of the financial market and to know that one must study technical analysis on the aspects he/she is going to deal with. Technical analysis can be in different aspects. Each book in the above list depicts the specializing facts on technical analysis. It has both goodwill and also criticisms to follow.
One must utilize the benefits and also acknowledge the criticism for future growth. Technical analysis is the representation of statistical data through various tools. One must choose the perfect tool for the appropriate analysis. So if you are into the trading and don’t have the basic clear view of technical analysis then you must grab these books and start from the beginning, because technical analysis gives you edge in trading.
There have been numerous books composed on technical analysis, yet some of them have become ageless works of art that are priceless. Those new to technical analysis might need to look at these books to adjust their systems and expand their chances of progress.
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