Applications of Technical Analysis.

Technical analysis is usually associated with short term trading i.e. people who buy for few hours or few days use technical signals for their entries and exits, but technical analysis is useful for long term investors too.

First, what is long term? Well long term is a relative term and depends upon the horizon of the individual. According to Indian tax laws if you hold shares for more than a year, your holding period will be categorized as long term.

Signals generated from weekly, monthly or yearly charts can be used to make long term investment decisions. Many institutions and traders analyze these charts to take positions that they hold for many months and years. In a recent blog post Peter L Brandt described charts as peels of onions; layer after layer reveals something new. So the shorter your time frames the more layers you have to peel. You can choose time frame of your charts depending upon your time horizon for holding positions. A long term investor can look for patterns on monthly charts and then come to weekly chart or daily chart to make tactical decisions to enter. Technical analysis also provides objective strategies for controlling risk, exits and money management etc., to the long term investor.

In essence technical analysis has immense applications and it’s up to you to use it in ways you want.

[Contributed by Jitender Yadav. Thank you, Jitender]