First of all, technical analysis is not about finding Lows to Buy or Highs to Sell. Rather it is a mechanism or process by using which one can anticipate how fundamental parameters will churn out.
You see a stock suddenly start to rocket 18%-20% upon rumors or news within days or weeks. Your technical indicators begin to speak, smaller timeframe MAs crosses higher ones, MACD, RSI, Stochastics, CCI, Momentum, William%R, Schaff Trend Cycle, Supertrend, etc. all of them shows promise. It becomes overpriced, then, something happens, and it’s back to its same value again. For instance, consider TATAMOTORS price chart. What I am trying to portray is that, technical indicators are a function of the price. These indicators are derived from the price of the asset not vice-versa. Price is not dependent on these indicators. Thus, technical analysis is a factor of fundamental reasons.
So, throw away technical analysis and concentrate on fundas only? That’s not suggested either. Fundamental Analysis can also be wrong. The best economists in US could not foresee the recession in 2008. Ben Bernanke even went live on TV and said “nothing to fear” days before the epic crash. There are zillion of instances wherein a Stock Earnings Report shows massive Growth, awesome Results, but, on contrary the Price plummets.
Clearly, price is just an advertised number determined by the transactions happening in the market place, which in turn is only driven by Human sentiments, most often, just opinions.
I can vouch for four independent factors:
Reaction of Supply/Demand on Price, and,
Understanding the Technical indicators, reading reports are a good place to start with, and of course, it helps. But in order to make a consistent profitable decisions one cannot fully rely on these things. Market provides two information only – PRICE and VOLUME, everything else is derived from it.
My suggestion would be to keep your understandings or knowledge of Technical and Fundamental Analysis as a basic foundation. Thanks to Zerodha Varsity! If you have completed all the chapters from there; then, congrats, you have learnt the basics! It’s time to move ahead, I would request you to focus on advanced school of thoughts like Market Profile, Volume Price Analysis (VPA), Volume Spread Analysis (VSA), Order Flow, Risk Management, Trading Psychology, Behavioral Economics, etc.
To give you a head start read the following:
James Dalton’s “Mind Over Markets”,
James Dalton’s “Markets in Profile”,
Anna Coulling’s “A Complete Guide To Volume Price Analysis”, and,
Bennett A. McDowell and Steve Nison’s “A Trader’s Money Management System”.
Alright! Alright! I talk too much. If you want to quench your thirst on Technical Analysis, then go for books written by John F. Ehlers. To mention:
Rocket Science for Traders,
Cybernetic Analysis for Stocks and Futures, and,
Cycle Analytics for Traders.
“Ehler Fisher Transform” developed by John F. Ehlers is one such indicator which is based on Gaussian distribution and far better compared to traditional stochastics or momentum indicators. In the books written by him, it is well explained along with other Advanced Indicators. My favorite is “Adaptive Moving Average Convergence Divergence (AMACD)”.
For Econometrics and other stuffs you need experienced professors than books. You can visit MIT OpenCourseWare for the same. Along with video Lectures and Readings, you will also have links for the best books on these topics available in planet Earth. Consider below links:
Topics in Mathematics with Applications in Finance,
Other courses in Finance, and,
Other courses in Economics (including Econometrics).
Please do yourself a favor, have patience, give yourself 9 – 12 months of rigorous study and research; slowly you will know what to seek for.
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