We all know about the stock market. The salmon pink €˜Economic Times, the blue colored CNBC screen with the ticker constantly listing names and prices and the Dalal Street are not alien. Yet, few know what the stock market is actually about. Simply put, the stock market is a network for the transactions of shares and derivatives at an agreed price. While a share is a single unit of the company'€™s equally divided capital, a derivative instrument is a contract between two parties that specifies conditions.

So what is it that lures people to the stock market? Risk taking capacities and the temptation for a quick buck? Perhaps, perhaps not. What remains undisputed however is that the market is one of the most important sources for building up capital. An art as well as a science, money here can be lost as quickly as it is made. So really, how does one work here? Trading and investing in the correct shares? And how does one determine that? Fortunately
there's help.

Its called technical analysis. Also known as charting, it is the discipline for forecasting the direction of prices, primarily through the study of past market data with the aid of price and volume. A fundamental principle of technical analysis is that a market's price reflects all relevant information, so their analysis looks at the history of a security's trading pattern rather than external drivers such as economic, fundamental and news events. Since the key focus here is price movement, where money is actually made or lost, it adds to the advantage of all kinds of market participants. Any trade underlying the market and its price movement can be plotted applying the standard rules of technical analysis, which makes it relevant across various asset classes - be it equity, currencies or commodities. Even though it does not exactly predict the future, it helps to identify trading opportunities.

Mitesh Thacker is one such leading technical analyst of India. With an experience of a decade on the Indian market scene with leading broking houses such as Kotak and Edelweiss behind him, Mitesh took up technical analysis because of its appeal and his own inclination. His foray into the field of technical research consultancy was marked with a huge event in the global market - the Lehman brothers announced bankruptcy. However, Mitesh was undeterred. A simple advice that he imparts is knowing your objective and sticking to it. When you enter as a trader or an investor, be firm and do not switch sides.

Career options for technical analysts--Tracing his own career path, Mitesh explains that progressing from being a research desk head to having your own consultancy firm is one of the career options in technical research. Others include working as a research person in a financial institution or simply trading.
Never mind the fact that we are still toddlers of technical analysis with respect to the rest of the world or that people are recently warming up to the concept, there’s hope and its plentiful. What works in this field is being true to your self, having independent views and strong logic, in addition to the old, tested and never failed hard work and dedication.

Technical analysis Education--So for those who wish to make a career out of this, there is a CMT (Chartered Market Technician) degree offered by the MTA (Market Technicians Association) and AAPTA (American Association of Professional Technical Analysts) in the US. Closer home, you can simply start with basic reading and simple research. Two recommendations include: Reminiscence of a Stock Operator by Edwin Lefèvre and How to Trade Stocks by Jesse Livermore.

For more on Mitesh and technical analysis, visit www.miteshthacker.com or catch him on ET Now.

Transcript

Global problems, increased volatility have investors totally confused. We have with us someone who can take us through the hard numbers today, Mr. Mitesh Thakkar. Mr. Thakkar is one of the leading and most renowned technical analyst in India today. He is going to help us understand technical analysis and the markets better.

Fundamental analysis, technical analysis, sentimental analysis – are all three equally important?

Every kind of analysis in this market is very important. The key is that you should realize what kind of a participant you are. So a fundamental analyst will help somebody who is more from an investment mindset, who is looking at probably a time frame of more than 12 months at least and about 3 – 5 years on the higher side whereas technical analysis primarily would help people who have a slightly shorter term horizon which is about from a few days to a few weeks.
Sentimental analysis probably would be even shorter. It is very important to know how the immediate sentiment in the market is and there the time horizon for the market participant is a range anywhere between a few hours on the downside to probably to a few days. So I think these are very important, but I think they serve different kind of market participants. You can’t take away any plus’s or minuses from all these three areas or nature of researches. But I think,
you know, it is the time frame, it is the investor’s need, it’s the mindset with which a participant comes into the market. I think keeping that in mind, I think its important to probably choose what kind of research you want to take.

Do Indian investors understand technical analysis? What are the biggest advantages of technical analysis?

I think you know if you look at the way Indian markets have shaped up, I think we have decently gone global in the sense that we are very well connected with the global markets now compared to what we were at least ten years back. So, technical analysis as a field is definitely very new and in a nascent stage as compared to where it rests in the global market. I would not say you know, there is a lack of understanding but I think if you were to talk about market
participants who come from an investment horizon, I think there is a slight lack of acceptance in the sense that this is a very very new approach and people would still when they take a slightly longer term horizon or a longer term call, they would still want to go through the fundamental set up before accepting or probably incorporating any kind of technical view. So, there is some kind of lack acceptance. But I think this has changed dramatically in the last 4 to 5 years and I hope that there will be better days ahead. Definitely, that’s the way the signals are. Coming to the fact that how it is advantage to do technical analysis, it is I think every market participant comes to the market with the objective of making money and that will depend on the price movement. When you have a fundamental guy, he probably looks at a longer time price movement. When you have a technical trader or a short term trader, he is looking at a short
term price movement and a sentimental analyst or a very small day trader kind of thing would look at few hours kind of price movement. But the key focus is the price movement and that is where your money is being made or being lost. Technical analysis focuses solely on this and definitely it adds to the advantage of all kinds of market participants.

Technical analysis could be used across all markets whether it be equity, commodities,currency. What’s your take on that?

Well, I think that’s the advantage of being a technical analyst. The versatility – it purely comes from the fact that the focus is on the price movements. Any free trade underlying the markets could be plotted, the price movement can be plotted on charts ad you could apply standard rules of technical analysis across the various asset classes, be it equities, commodities or currencies. I think that’s the advantage and I again I think I’ll go back to the point that this will
help serve the different kinds of participants in the market. You can have long term traders in the commodities, short term traders in commodities, day trading commodities. Similarly, you’ll have extreme short term moments as people who are trading for a short term moments in the currency markets. So I think, that’s the flexibility of this kind of research.

Mitesh, you are a renowned technical expert. In these globally volatile markets, what is the advice you could give to investors as well as traders?

Well, I think the first advice and I think this is most common advice. It is that one should know their religion. I think you know when you come to the market I think you should come with a certain set of expectations. While that is a very normal thing to expect, people generally keep on changing their stance or their religion in the market as the market movement happen. So people who come with short term trading horizon will buy stocks, hope the price will go up in
the short term and then they will be stuck on to it if the prices do not move in their direction. And then from traders, they become investors. So, my first and foremost advice which is the most important part, is that know your religion. Know your objective. If you are a short term trader, stick to short term trading. If you are a long term investor, stick to long term investing. I think its very important not to confuse these roles and therefore if you able to manage yourself
out over here, I think the returns will be much better and you will be much happier with the way you are participating in the markets.

You’re an MBA in finance. What made you choose technical analysis as your area of expertise?

Well, I think I was always fascinated by the equity markets and when I was approaching equity markets and I went through different kind of approaches. A inner look, you know, when you look inside yourself as to what your strengths are, what your weaknesses are, what kind of analysis you are comfortable doing mentally I think technical analysis appealed to me the most. And I was very clearly inclined from the beginning that I would probably work in this field and carry out my work and research in this field.

What according to you are the opportunities for a young person who has chosen this field?

Well, I think opportunities will clearly exist in the field of research. You can work as a research person in a financial institution or a broking house and today we have institutions not only limiting to India, but you have global opportunities as well. So, a lot of big global broking houses will be hiring people who will be tracking various markets, doing inter market analysis in commodities, currencies and the movement of stock prices across the world. So that’s the one most common way of having a career in this field. I think the second one is that people then graduate from being a research desk head to probably having their own consultancy business, which is what we have done. I think over the number of years you can have your own consultancy business with your own set of clients whom you advice regularly on short term trading opportunities in the markets. And the third one would be probably get into the so called holy grail which is the trading as an activity. I think you know people can become a prop trader, join a prop trading desk where this skill set of doing technical research come in very very handy. Because that is what helps them to take shirt term views on the markets and probably then people can even trade for themselves. So, these three are the most common career opportunities in the field of research.

Was it difficult to set up your own firm because there are a lot of established players around? Or you have worked in Kotak as well as Edilweiss. Did that help?

Definitely, yes. You know when somebody has worked for establishments like Kotak or Edilweiss or any other broking houses which are well known, I think it puts you in a very strong and advantageous position. One is that you’ve travelled across the country, you’ve met and interacted with most of the clients, worked with the best of the people. You have some kind of standing in the market, you have a pedigree coming from a well – known research house and that is the place you know where every move of your is properly scrutinized. So you are past that test of working in one of the most watched broking houses, most watched financial institution. And then that gives you a lot of confidence coming up in your own business.

Your first day on your new venture, it was the day Layman had announced bankruptcy. What were your thoughts as an entrepreneur at that time?

Well, I think I always had this dream of starting on my own. And I think, timing was very crucial to me for my endeavor. When I was starting off, it was coincidentally the first day in my house when the news of Layman brothers filing for bankruptcy came. But I think the call which I took that time was that things could go even worse. We are closer to the bottom, somewhere. Having been in the market for 10 -€“ 11 years, what I have seen is that markets go through cycles. You'€™ll have a top, a bottom, the best of news and business opportunities around you, and you will have the worst of them. So when I wanted to start on my own, I wanted to start somewhere closer to the bottom. That was the call I took. And I went ahead with that.

Who is the technical analyst you admire globally or in India?

Well, I think I have read books and papers by most of them. One gentleman, who is a very famous personality globally is Mr. Pring. He used to work on momentum and indicator has been fascinating and I think he is doing a fantastic work. Plus, he has thrown a lot of focus on inter-market analysis which is basically relationship between how bond, commodity and equity prices move over a period of time. I think that is the most fascinating work I have read.

Business channels as well as investor camps are very big right now and you know very important to investor awareness. How can an investor derive maximum benefit?

Well, I think apart from the fact that when there is direct interaction with the investors, people throw a lot of ideas and thought in their mind as to what stocks they are watching, what sectors they are watching. And I think it gives them an opportunity for the investors to understand what kind of effort is being put by an analyst. It kind of bridges the gap between the mindset of an analyst and the needs of an investor. So when people meet different people, on such
forums we will have people who will comment on different issues. The investors can classify and understand as to what will suit them the most. So that gap between the investor and the analyst is being reduced by these kind of forums. That’s the most important thing. That will make the investor realize his own requirements as a market participant and I think that’s the focus point.

Any courses or books you could recommend for technical analysis?

There are no formal courses as such for technical analysis in India. I think recently what we have seen is that some organizations in India have tied up with foreign organizations like ATMA which is the association of technical market analyst which is tied up with the MTA, the technicians association from the US and they offer a CMT degree. So it’s a very wonderful opportunity for people who want to go through a formal training on this subject. Apart from that, books and all you can probably just go to the internet and search for books on technical analysis. I think you will get a lot of good books on diverse subjects in technical analysis itself. There are two books however, which any upcoming trader should read. One of them is: Reminiscence of a Stock Operator by Edwin Lefèvre and How to trade stocks by Jesse Livermore. I think these were books written way back in early 20th century – 1920’s, 1925’s - and I think they are being read and followed worldwide. They still make a very good read. They basically delve into the psychology of a trader and I think its very important for a technical analyst to understand what kind of emotional highs and lows a trader can go through.

Any advice to someone who is planning to pursue technical analysis as a career?

Well, I think the biggest thing is you know – one is that once you have identified that you want to make technical research as your career, I think the most important thing is that apart from the standard hard work and dedication is to be true to yourself. Today because of media presence, we have a lot of technical analysts coming on television, on various media channels. I think it is very important for you to have your own view. You should also have a strong logic
for deriving that kind of view. If you focused more on research, if you understand the kind of indicators you are comfortable working with, it is a journey within. But you need to figure out and you know probably have an individual standing in terms of what you want to do.

Mitesh, who is your inspiration in life?

I have spoken about Mr. Pring, his work has been fascinating but I think the most inspirational thing or I think thought which probably puts me into this position is the face that making money, trading in the markets day in and day out and doing it consistently I think is a very big challenge. That thought is very inspirational for me and I want to stand up to that challenge.

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