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Friday, October 14, 2011
What Is Technical Analysis? | 360 Stock Charts
What Is Technical Analysis?
Typical Stock Chart
Technical Analysis is the study on how security prices behave and how to use that information to trade and avoid losses. Technical analysis illustrates the classic economic theory of supply and demand in a visual manner, that also has a predicative value in its ability to forecast future price movements, or trends, often based on probabilities and sentiment in the markets. So instead of reading a company’s financial statements or analyzing the industry conditions, technical analysis focuses on the emotions and behaviors of the company’s investors.
It is like visual investing or a visual representation of how a stock behaves over time.
Technical analysis, or stock charting, utilizes a wide variety of indicators to help predict the future movement of a stock, for example, the relative strength index or RSI, moving average convergence-divergence, or MACD, and regressions.
WHAT IS TECHNICAL ANALYSIS?
Technical Analysis is the study on how security prices behave and how to use that information to trade and avoid losses. Technical analysis illustrates the classic economic theory of supply and demand in a visual manner, that also has a predicative value in its ability to forecast future price movements, or trends, often based on probabilities and sentiment in the markets. So instead of reading a company’s financial statements or analyzing the industry conditions, technical analysis focuses on the emotions and behaviors of the company’s investors. It is like visual investing or a visual representation of how a stock behaves over time. Technical analysis, or stock charting, utilizes a wide variety of indicators to help predict the future movement of a stock, for example, the relative strength index or RSI, moving average convergence-divergence, or MACD, and regressions. Just as there are many indicators there are also many techniques, for example, candle stick charting, Dow Theory and Elliott wave theory. No one indicator or method is sufficient to guarantee profits on every trade, so the investor must learn and then decide which indicators and methods to use in his or her analysis, and then apply them with a disciplined approach. Technical analysis is one of two broad categories of analysis, the other being fundamental analysis. Some authors will try and tell you that technical analysis is only used for short-term or speculative purposes. I do not agree! Technical and fundamental analysis are siblings: Once you perform your fundamental analysis and identify potential investment opportunities, you can use technical analysis is identify entry and exit points of your investments. Think of technical analysis in this matter: How do you know whether the price today is good or bad? By comparing it to the past and forecasting into the future. Technical analysis allows you to do both. You can look at the current price in relation to the past, or historical prices, and project the current trend or direction of the stock into the future. And technical analysis goes way beyond these basic principles. It allows you to determine whether a stock is overbought or oversold, long- and short-term trends, trading ranges, and even measure sentiment. Lastly, since most of us think and see with our eyes, technical analysis allows us to ‘see’ an investment in real-time. Good investing, Kevin of the 360 Investing Guys
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