What is Technical Analysis?
Technical analysis is not an exact science. It's an art and takes considerable experience. Not all studies work the same for every instrument traded. One study may give excellent buy and sell signals while another may not work for you at all. It's up to each individual trader to find those that will fit his or her specific needs.
"Technical analysis attempts to use past stock price and volume information to predict future price movements."
Three basic assumptions on which Technical Analysis is based are:
- 1. The futures market discounts everything.
- Prices move in trends.
- History repeats itself.
- Volume shows when investors are in and out.
- Technical analysis is a very powerful tool and is a pre-requisite for anyone who wants to predict financial market movements. The term "technical analysis" is a complicated sounding name for a very basic approach to investing.
- volume-based technical analysis is very effective for analysis of future prices of QQQ (NASDAQ: QQQ), S&P 500 (AMEX: SPY), Dow Jones Industrials (AMEX: DIA).
- Simply put, technical analysis is the study of prices and volume, with stock charts being the primary tool. So while it seems as if volume and technical analysis in general all have some forecasting abilities, none are foolproof. Used together, they can be quite helpful in your trading and investing, but should be looked at more as helpful hints as to a markets bias, more than anything else.
- A technical analysis doesn't look at income statements, balance sheets, company policies, or anything fundamental about the company. The technical analysis looks at the actual history of trading and price in a security or index. This is usually done in the form of a chart. The security can be a stock, future, index, or a sector. It is flexible enough to work on anything that is traded in the financial markets.
- For a real Technical Analysis Make sure to get real-time STREAMING quotes if you trade often. The quotes should automatically update themselves. You should also be able to see bar charts that show at least two-minute intraday price action.
- Every technical analyst knows the importance of charts and indicators. But if these were all it took to make profitable trading decisions, everyone would be a winner.
- Technical analysis is not an exact science. It's an art and takes considerable experience. Not all studies work the same for every instrument traded. One study may give excellent buy and sell signals while another may not work for you at all. It's up to each individual trader to find those that will fit his or her specific needs.
- Moving Average
See moving averages charts in the section titled Tutorials on Technical Analysis Indicators in the Technical Analysis section. There is an extensive discussion of them there.