Technical Analysis
Technical Analysis: What It Is and How to Use It in Investing
What Is Technical Analysis?
Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. Unlike fundamental analysis, which attempts to evaluate a security’s value based on business results such as sales and earnings, technical analysis focuses on the study of price and volume.
KEY TAKEAWAYS
Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities in price trends and patterns seen on charts.
Technical analysts believe past trading activity and price changes of a security can be valuable indicators of the security’s future price movements.
Technical analysis may be contrasted with fundamental analysis, which focuses on a company’s financials rather than historical price patterns or stock trends.
Using Technical Analysis
Professional analysts often use technical analysis in conjunction with other forms of research. Retail traders may make decisions based solely on the price charts of a security and similar statistics, but practicing equity analysts rarely limit their research to fundamental or technical analysis alone.
Technical analysis can be applied to any security with historical trading data. This includes stocks, futures, commodities, fixed-income,currencies, and other securities. In fact, technical analysis is far more prevalent in commodities and forex markets where traders focus on shortterm price movements.
Technical analysis attempts to forecast the price movement of virtually any tradable instrument that is generally subject to forces of supply and demand, including stocks, bonds, futures, and currency pairs. In fact, some view technical analysis as simply the study of supply and demand forces as reflected in the market price movements of a security.
Technical analysis most commonly applies to price changes, but some analysts track numbers other than just price, such as trading volume or open interest figures.
How Can I Learn Technical Analysis?
There are a variety of ways to learn technical analysis. The first step is to learn the basics of investing, stocks, markets, and financials. Once the basics are understood, from there you can use the same types of materials but those that focus specifically on technical analysis.