There are basically two kinds of analysis that is carried out at the stock market – fundamental analysis and technical analysis. Fundamental analysis deals with, as the name suggests, the fundamentals of a particular stock – the company’s sales, net profit margin, return on average equity, the earning per share, last bonus and divided and other factors. Based on a study of all these factors, it is decided whether the stock is purchase-worthy or not.

However a technical analysis goes beyond all this by studying the market activity in the past, which includes the price fluctuations of the particular stock over the last few months and trying to find out a pattern so that its movements can be predicted. There are many other considerations involved in such a technical analysis and this includes the volumes traded for the stock, the market movements in the stock’s industry, competitor news, economic condition and changes in the govt. policies if any. In other words, they believe that it is not just the fundamentals that decide how the stock would perform, there are many other factors that are involved.

There are technicians who carry out this technical analysis and they use various charts and graphs to come up with the correct assumption.

External Factors That Are Considered By The Technicians

“History repeats itself” – this is the basic principle that guides these technicians. When they are analyzing, they are actually studying the different financial and non-financial events that has happened in the market over time and trying to know how a particular stock behaves with these events. Whether the volumes increase or decrease? Whether the stock prices go up or down? And of course how the company’s financial performance changes with all these?

These people are not actually bothered about the management team that is leading the company or the business model and the challenges they are facing. What actually matters to them is the trend – how the stock reacts to what market changes. And if they can find a pattern in this, they know that this is a trend for that particular stock.

This information is of course very useful because once diagnosed properly, the stock’s movement can be predicted the next time such changes happen in the movement. Correct predictions can thus be made such as the price will go up by 10% in the next 2 weeks, the volumes traded will come down etc.

The technicians are also trying to find out the support and also the resistance for the stock. Support is the low price at which investors generally begin to buy the stock, and resistance is just its opposite – that is, the level from where the stock price starts to go down.

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