A Quick Rundown on Technical Analysis
Technical analysis is the ability to predict future prices by using past data to know where the market will be going. This happens primarily by watching the charts and then understanding how volume correlated to price during different market sessions. Part of the reasoning behind technical analysis is that information within the market is already priced into the market. This would happen before investors are aware of this information and that causes the shifting prices of stocks within the market. As investors become aware of information throughout time, you are able to gather how investors will react due to past behavior born out in the charts. This is where technical analysis truly comes into play. Let’s quickly go through some of the different patterns that are used in technical analysis. The first pattern that often is talked about is a head and shoulders pattern. This occurs when the price increases and then declines, then the price increases to a peak beyond the previous peak, and then declines. After this latest decline, the price will increase again to roughly the first peak. That is a head and shoulders pattern because there is peak 1, peak 2 which is higher than peak 1, and the third is to a peak roughly of peak 1. There is a double top as well. A price increases due to bullish indicators, hits a wall, and then declines. The price then increases again to roughly the prior peak and then declines again. This is often a sign that selling will take place because there is resistance that the price can increase beyond the previous high.Technical investors will also look at moving averages as part of the information to make a good decision. It has been disputed by many academics whether technical analysis is successful or not. There have been studies completed which have shown technical analysis can be done but the data used within these studies has been dubious. This placed a cloud over the results of the studies so most experts take the findings with a grain of salt. Technical analysis seems to have worked for many people. It does require constant monitoring of the markets if you are interested in this. Most active day traders will use technical analysis and will take quick positions, make a profit, and then get out. It is very quick and the profits are normally small. These small profits will add up if several positions are taken over the course of a day or a week. Go from Technical Analysis Back to Day Trading
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