Use technical analysis to spot trends; don't overlook these key factors while analysing stocks: Foram Chheda

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Foram Chheda, CMT, and Founder of ChartAnalytics.co.in, explains how fundamental and technical analysis complements each other. Technical Analysis, if put in simple words, involves studying historical price and volume patterns to predict future market movements. It is applied to all those asset classes that have historical prices and price/volume data and therefore technical analysis finds its applicability across all asset classes such as stocks, bonds, currencies, commodities, etc.

This method aids investors in making informed decisions, enhancing their ability to identify favourable entry levels and reduce potential risks. It is a myth that technical analysis is useful only to traders and not to investors. In fact, it serves as a critically important tool for long-term investors as well.

The technical analysis of the higher timeframe charts like weekly and monthly charts are extremely useful in identifying the beginning or reversal of major long-lasting trends; they are extremely helpful in finding optimal entry and exit points for long-term stocks and are one of the key contributors when it comes to generating alpha on the long-term investments. Being a classical technical analysis, my primary reliance remains that of pattern and trend analysis using different indicators and oscillators. I follow a top-down approach to analysis extensively using Relative Rotation Graphs (RRG).

For example, while selecting stocks, I would examine different sector indices with the broader Nifty 500 index, and find the sectors that are relatively stronger than others. Having done this, the next step would be to find the stocks within these short-listed sectors that have strong Relative Strength. The reason for putting Relative Strength