What is Technical Analysis.
Essentially Technical analysis is a study of the actual share price movement, not the fundamentals of the company.
Technical Analysis is probably the more common and successful way of making trading decisions and analyzing forex and commodities markets.This is how the trader uses the forecasting of future financial price movements founded on an scrutiny of past price movements.
This is a method of assessing securities by analyzing the statistics generated by market activity, such as past prices and volume. This research of market dynamics is done mainly with the help of charts and with the aim of calculating future price development.
Technical analysis is widely believed to be essential in limiting risk and maximizing profit as part of any trading and investment scheme. Technical analysis is often contrasted with fundamental analysis,the study of economic components that influence prices in financial markets.
Technical analysis is not confined to charting, but it always looks at price trends. Technical Analysis is “the study of market psychology through the behaviour of buyers and sellers as manifested in price charts. This is most generally used to identify patterns of market behaviour which have long been accepted as of significance.
Technical analysis is not an precise science and is not meant for long-term investments because fundamental data pertaining a company’s potentiality for growth is not taken into account. Technical analysis is the art and science of analysing stock chart data and predicting future moves on the stock market.
Technical analysis is different from fundamental analysis because technical analysis is applied only to the price action of the market, dismissing fundamental factors.
Another significant thought in technical analysis is that history inclines to repeat itself, chiefly in terms of price movement. Another important cornerstone of technical analysis is that price movements are not random, but often tend to trend in some direction most of the time.
One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments simultaneously.
Stock Prices move in trends. These price patterns are plotted onto charts that can vary in time frame and charting style. Price movement or price volatility occurs in the stock market as a result of varying factors that often include, but are not confined to the following: political and geopolitical events, the flow of money in and out of the world’s investment markets, economic stability or the lack there of within specific countries, action taken by the Federal Reserve orany of the equivalent government bodies of other nations who raise or lower their interest rates.
All share prices will move at random and often adjust themselves to new information as it becomes available.
Many technical analysts apply chart patterns to predict the future of price behavior.These chart patterns have been recognised and categorised for over 100 years and the manner in which many patterns are repeated,has lead to the conclusion that human psychology has changed very little with time.
There are a multitude of different Patterns and chart formations available.For instance there are Trendlines and Trend channels, Support and resistance, Triangles, Pennants, Flags, Double tops and bottoms, Head and shoulders, Rounded tops just to name a few.
Then you come to the dozens of Technical indicators which are used. Accumulation and distribution, Bollinger bands, movement index, moving averages, Historical price volatility, Moving averages convergence Divergence MACD, Relative strength index RSI, Stochastic, Gann charts, Candlestic charting, Point and figure charts and so the list goes on.
To explain all of the indicators alone, would require a whole book to cover them all properly in detail.
I wish you profitable trading.