Technical Analysis Part One

Technical analysis is the art and science of examining stock chart data and predicting future moves on the stock market. Investors who use this style of analysis are often unconcerned about the nature or value of the companies they trade stocks in. Their holdings are usually short-term once their projected profit is reached they drop the stock.

The basis for technical analysis is the belief that stock prices move in predictable patterns. All the factors that influence price movement company performance, the general state of the economy, natural disasters are supposedly reflected in the stock market with great efficiency. This efficiency, coupled with historical trends produces movements that can be analyzed and applied to future stock market movements.

Technical analysis is not intended for long-term investments because fundamental information concerning a company's potential for growth is not taken into account. Trades must be entered and exited at precise times, so technical analysts need to spend a great deal of time watching market movements.

Investors can take advantage of both upswings and downswings in price by going either long or short. Stop-loss orders limit losses in the event that the market does not move as expected.

There are many tools available to the technical analyst. Literally hundreds of stock patterns have been developed over time. Most of them, however, rely on the basic concepts of 'support' and 'resistance'. Support is the level that downward prices are expected to rise from, and Resistance is the level that upward prices are expected to reach before falling again. In other words, prices tend to bounce once they have hit support or resistance levels.


Technical analysis relies heavily on charts for tracking market movements. Bar charts are the most commonly used. They consist of vertical bars representing a particular time period weekly, daily, hourly, or even by the minute. The top of each bar shows the highest price for the period, the bottom is the lowest price, and the small bar to the right is the opening price and the small bar to the left is the closing price. A great deal of information can be seen in glancing at bar charts. Long bars indicate a large price spread and the position of the side bars shows whether the price rose or dropped and also the spread between opening and closing prices.

A variation on the bar chart is the candlestick chart. These charts use solid bodies to indicate the variation between opening and closing prices and the lines (shadows) that extend above and below the body indicate the highest and lowest prices respectively. Candlestick bodies are coloured black or red if the closing price was lower than the previous period or white or green if the price closed higher. Candlesticks form various shapes that can indicate market movement. A green body with short shadows is bullish the stock opened near its low and closed near its high. Conversely, a red body with short shadows is bearish the stock opened near the high and closed near the low. These are only two of the more than 20 patterns that can be formed by candlesticks.

Fundamental Analysis 2
Earnings per ShareThe overall earnings of a company is...

Stocks Vs Mutual Funds
What is the advantage of a diversified portfolio? It offers protection against rapid market loss...

Stocks Trading Signals
Investors who treat trading as a full-time job have the time to watch ...

Getting Started
Most stock trades are done through a broker an intermediary who takes orders and executes them. Brokers can als...

Technical Analysis 2

Stock Splits
Why would a company do this?...

Penny Stocks
All of these factors low price, lack of standards, and lac...

Pink Sheets Stocks
Penny stocks are securities that are less than $5 in value. Alth...

Stock Indexes
There are many different stock indexes, the most common in the United States bein...

Stock Brokers
These perks are not free full service brokers charge ...

Stock Prices
To a certain extent stock prices are determined by investor confidence but that confidence in turn is based on ...


Stocks Vs Bonds
Bonds always carry the risk that the principal amount may not be paid back. Comp...

Stock Markets
The 'Stock Exchange' is the correct term for the physical location for trading stocks. Each country may have many dif...

Types Of Trading
The stock market also provides opportunities for short-term investors. Market skittishness can cause prices to fluctua...

Stock Options
A contract to buy is called a 'call option'. The buyer of a call option hopes the price of the underlying stock w...

Fundamental Analysis
The goal of fundamental analysis is to determine how much money a company is making and wha...

Bull Bear Markets
Bull and Bear are the terms to describe the general conditions of the stock...

Stock Trading Strategies
HedgingHedging is a way of protecting an investmen...



Site Menu


More Articles