Market analyst Ashok Kumar Shah has shared his views on the actual purpose of technical analysis and the mindset needed for successful trading in the stock market.
Many people think that technical analysis is a tool to predict future of the stock market. However, experienced market analyst Ashok Kumar Shah has clarified that its real purpose is to understand the possible direction of market and investor psychology.
Speaking on the Bajar Ko Chirfar Premium Podcast, Shah, who has been active in capital market for more than two decades, discussed about history of technical analysis, Dow Theory, smart money strategies, and successful trading habits in Nepal.
The Origin and Principles of Technical Analysis
According to him, technical analysis started from candlestick charts used by Japanese rice traders to study price fluctuations. Later, Charles Dow developed its modern foundation through the Dow Theory.
Shah said that according to the main principle of Dow Theory, stock price reflects all available information. Therefore, investors should focus more on price and volume behavior rather than news. He added that the market generally moves in three trends which are bullish, bearish, and sideways. Since no trend goes straight up or down, it is wrong to think of a normal correction as a trend change.
Smart Money vs Retail Investors
There is a big difference between behavior of smart money and retail investors. Smart money buys when there is fear in the market and sells when there is high excitement, while most retail investors do exactly opposite.
Speaking about the use of technical analysis in Nepal, Shah explained that chart analysis is only effective in companies with enough volume, good liquidity, and clear price history. It is not correct to apply technical analysis in same way to all companies.
He pointed out that many investors are confused by social media posts that announce target prices without any basis, or make predictions based on just one indicator.
What Makes a Successful Trader?
To become a successful trader, one needs knowledge of trend identification, support and resistance, risk management, and a good risk-to-reward ratio. Shah said that a successful trader is not someone who makes profit in every trade, but someone who can exit with a small loss when a decision goes wrong.
In conclusion, technical analysis is not magic or a tool for predicting future. It only shows the possible direction of the market, not a fixed destination. For long-term success, discipline, risk management, and right mindset are more important than charts.
AI Disclaimer: This article was originally published on https://bajarkochirfar.com. It has been translated with the help of AI. For the best understanding and accurate facts, we recommend reading the original Nepali version.
