What is Technical Analysis?
Technical Analysis is a method for estimating the direction and trend of prices of different stocks by studying historical prices, volumes, charts, and various technical indicators. So, in technical analysis, you are only concerned about past market data, prices, and volumes. You are not concerned with the fundamentals of the company. You are not concerned with the CEO of a particular company, the shareholding pattern of the company, how’s the industry of that particular company doing, and other fundamentals.
The supply and demand affect the prices and volumes of stocks. Hence, the most crucial factors of technical analysis are supply and demand, which in turn affect the prices and volumes of stocks.
When Should You Use It?
Those who are short-term traders and trade stocks on an intra-day basis use technical analysis more frequently. Day traders and swing traders make use of technical analysis of stock the most often!
Technical Analysis helps in deciding when to enter the market, and fundamental analysis helps in deciding how long an investor should hold a position.
But I would like to say that both technical and fundamental analysis are equally important if you want to gain success in the stock market.
MarketXLS provides a ready-to-use template for keeping track of the technical indicators of a stock and running technical analysis timeliness.
Let us understand a few terminologies (technical indicators) used in the template before diving straight into the template.
Simple Moving Average(SMA)
This is one of the most significant indicators of technical analysis. It refers to the average closing price of a stock over a particular period of time. The rationale to use this as a technical indicator is that it indicates the trend/ direction of the price of a stock.
Since it is an average, it is evident that it is based on previous prices. The SMA line is much smoother than the other averages as it allocates equal weightage on all data points.
SMA = Simple Moving Average
P = Price
n = Number of periods
The most prominent periods for SMA are:
We have used the last three in our ‘Technical Analysis Timeliness’ template.
Relative Strength Index(RSI)
The RSI is a momentum indicator used to find the magnitude of price change to ascertain the market’s volatility.
It indicates whether a stock is overbought or oversold. If the stock is overbought, then the traders sell the stock, and its price falls, and if the stock is oversold, then the traders buy the stock, and its price rises.
There are two RSI reference levels: 30 & 70
If the RSI surpasses the 30 reference level, it is a bullish trend. If the RSI crosses the 70 reference level, it is a bearish trend.
(The perspective of many investors, related to RSI, may be different.)
The formulas of both indicators are just for your knowledge and reference. You don’t have to calculate them while using the template.
The template automatically does all the calculations.
Technical Analysis Timeliness in MarketXLS
MarketXLS provides a ready-to-use template for evaluating the stock based on technical indicators.
Timeliness means that the stocks which the user enters in our template would be ranked according to their expected performance.
Thus in this template, we have ranked stocks based on the SMA & RSI.
Thus, the primary rationale for using the template would be to assess the trend of the stock by using past price data and other indicators.
You have to enter Stock Tickr in cell E7, E9, E11, and E13 of this sheet.
We have taken the following stocks in this example:
Amazon (NYSE: AMZN)
Walmart (NYSE: WMT)
JD.Com (NYSE: JD)
Alibaba Group (NYSE: BABA)
The result and analysis made by the template based on calculations would appear on this sheet itself beside your stock ticker inputs.
For detailed analysis, you will have to switch to the ‘Calculations’ worksheet.
This section of the sheet calculates the score of the stocks based on multiple factors, and the result can be determined based on this score.
What are Range Tables?
The current stock price is evaluated with the moving averages in different time frames, and based on that, we have given a rank to them. The closer they are to moving averages, the better rank they will have.
Similarly, we have given the rank on the Relative Strength Index. You can change the range as you desire by changing the yellow highlighted values.
On What Basis is the Timeliness Score Calculated?
However, the first table in the sheet shows the actual score given to the stocks. This score is based on the 20 Days SMA, 50 Days SMA, 200 Days SMA and RSI.
In this example, the total of the stocks are as follows:
AMZN = 37
WMT = 33
JD = 40
BABA = 37
How to interpret the results?
1) If Score > 30, the stock looks attractive for longs
2) If Score < 30, the stock doesn’t look attractive for longs
Hence, according to the template analysis, all the four stocks look attractive for longs.
(These templates should not be considered as an advertisement or advice, professional or otherwise. You are requested to consider all the risk factors, including your financial condition, suitability to risk-return profile, and other similar conditions. These templates do not account for any professional advice but are merely some guidelines to explain the concept.)
The Bottom Line
Thus, the template does all the calculations and returns the score of the stocks, which is based on a couple of significant technical indicators. It makes your work easier by providing all the data related to stocks and technical indicators. You have to enter the stocks of your choice in the ‘Index’ worksheet.
However, we have to remember one thing; past performance is not a guide for future performance.
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