How to do technical analysis of stocks?

How to do technical analysis of stocks

For coming to a conclusion we need facts and indications, similar is with trading in stocks. We cannot blindly buy or sell a share until we are clear with the trend. And analyzing a trend needs technical analysis. It guides us to enter and exit at the right time for maximizing our gains and protecting our capital. 

And the best part is that, unlike fundamental analysis that requires an individual to have some understanding of reading the financials of a company. Technical analysis can be deciphered by anyone for predicting the stock price momentum.

Today, we will be learning about the technical analysis of stocks and how to do technical analysis of stocks for determining the trend, predicting the price movement, and shortlisting the right stocks for trade.

Technical analysis of stocks

There is a very popular term in the stock market that "history repeats itself" and technicals give us guidance to review the past information by reading charts and patterns.  From those charts and patterns, we can make smart predictions if the stock moves up or down. However, there is no 100% accuracy that stock will move as per the trend prediction since the market is very volatile and our decision may go wrong at any point.

But, it assists us in selecting the most probable trading decision, just like a hint. You can relate it with the exams, in our school or college time we use to ask for past question papers from our senior students to get know-how. 

And many a time the questions are taken from the past papers. In the same way, technicals follow the same approach and traders rely on the faith that we could find the same trend that they have identified in the past. Now, let us focus on how to do technical analysis of stocks?

How to do technical analysis of stocks?

Technical analysis is very vast as there are numerous patterns that are pretended to certain our next move. We will be studying how to do technical analysis of stocks and exploring some general examples for bringing ease to our understanding. Also, it is advised to follow the given technical inputs to develop a clear idea for the technical analysis of stocks. 

1. Chase different Candlestick patterns

There are many names under charts and patterns, but the most widely used chart is the candlestick chart. Candlesticks highlight vivid details about the price movement, it further consists of 2 components:

Body: Depicts the opening price and closing price. 

Wick: It shows the high and the low price under a particular time frame.

Type: A green candle is a bullish candle that moves above its opening price. And red candle is a bearish candlestick that moves below its opening price under a particular time frame.

Further, these candles certain upcoming trends and trend reversals by alerting at different points. Some of the widely followed candlestick patterns are: 


Doji is a candlestick pattern that is built when the opening price is almost or similar to the closing price. The pattern clearly indicates inconclusive price movement. They are further divided into different types: Dragonfly Doji,  Gravestone Doji, etc.


A hammer is shaped like a pattern with a short body with a longer lower wick  The wick can be twice as long as the body. A hammer is a positive price indication that indicates that a bearish trend may turn into a bullish trend. In simple words, sellers try to take control over the price but buyers again oppose the direction by buying heavily. 


Morning star is a positive candlestick pattern that is formed with a combination of three candlesticks that is formed after 3 days of continuation. The pattern is framed when on the first trading session a bearish candle is formed, on the 2nd day a doji or a spinning top is formed, and eventually, on the 3rd day the buyers took over the control. Turning a bullish momentum.

2. Use Indicators for clear intimation 

Indicators are the supportive tools that help in analyzing further price movement. They display the entry and exit points based on calculations. Some of the widely used indicators are:


RSI stands for relative strength index. It helps the traders to understand the overbought or oversold zones. The zones are backed by a 0 to 100 scale range. Generally, when RSI is above 70 we consider it in an overbought zone which means the prevailing price may consolidate below the present levels.

While RSI below 30 indicates an oversold zone that gives us a prediction that the prevailing price is quite low and the buyer may take the charge to bring back the stock price in a positive range.


MACD stands for moving average convergence and divergence. The indicator is judged on the basis of two intersection lines. One is the signal line and the other is the MACD line. When the crossover is in the upward direction it indicates the buying signal. On the other hand, when the crossover is in a downward direction it indicates sell.

3. Study candlestick patterns at different time frames 

Timeframes are very crucial for traders who are willing to maximize their profitability rate. As there are different traders who have different objectives. There are 4 main types of trading strategies: Intraday, Scalp, Swing, and Position trading. And each trading strategy works well when merged with the right time frame.

Intraday: An intraday trade is valid for the day and an ideal time frame chart can be a 15 min chart.

Scalping: Scalping is done at a very faster rate, it involves quick buying and selling within a few seconds or minutes. A scalp trader could focus on a 1-3 min chart pattern.

Swing: Swing trading involves holding stocks from few days to a few weeks and traders can go for a wider time frame of 1-4 hour chart. 

Position: It is a practice of holding a position for a week to many weeks, it is good to check daily or the weekly chart pattern.


The technical analysis of stocks works as a guiding track for traders for making the right decision in a limited time span. Unlike fundamental analysis, technicals are nothing to do with the management or financials of the company. As the main focus is to get out of the trade at the right time without risking the capital.

We have touched upon brief inputs of How to do technical analysis of stocks? But, having in-depth knowledge crucial to enhance the probability of more profitable trade. It is advised to practically apply the reading while trading for the best results.