| How Technical Analysis Works |
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| Written by Michael Swanson |
| Saturday, 15 August 2009 11:48 |
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When using the term technical analysis this refers to future financial price movements based on an examination of past price movements to use in stock trading. It does not result in absolute predictions of the future. It shows what might happen to prices over time.
When using the term technical analysis this refers to future financial price movements based on an examination of past price movements to use in stock trading. It does not result in absolute predictions of the future. It shows what might happen to prices over time. There may be trading rules and models for technical analysis which is estimated on price and volume transformations which include regressions, strength index and moving averages. The correlations between inter and intra market prices will be recognized from the chart patterns given. Technical analysis is made use of mainly by financial professionals and traders as well as active day traders, pit traders and the market makers. Modern studies of technical analysis has proved that it gives positive results and it was noted that these results were suspect due to issues such as data spying and he study was deemed inconclusive. Many researchers still maintain that technical analysis is not consistent and is a weak form of market hypothesis. Technical analysis is a vast topic. It is based on three assumptions - whereby history repeats itself and prices move in trends, as well as the market will discount everything. Analysts are not perturbed if stocks are undervalued; what matters is the security of past trading stats and what information the past stats can provide as to where the security will move in the future. Technical analysis is often referred to as market technicians or technical market analysis and now and then you will hear the term chartist used. Patterns are exploited when technical analysis uses price patterns to identify trend in the financial market. History keeps repeating itself; in that investors will form the same pattern their predecessors used. The sentiments of investors can be seen and heard time and again. And due to this repetitive pattern by investors technical analysis is very predictable and the chart will be formed by the obvious price patterns. Price trends are not always limited to price trends many surveys are monitored by technical analysis by investor sentiment. The attitudes of participants on the market are gauged specifically as to whether the participants are bullish or bearish. The technical analysis uses this trend to determine the continuation of a reversal development in order anticipating change in the investors market. There are different methods and teaching applied to technical analysis like the Elliot wave, candlestick, and Dow Theory; and other approaches may be ignored, but a lot of the time these elements are combined from more than one source of teaching. Technical analysis is based on experience and patterns reflect at a given time as to what interpretation of the pattern should indicate. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. For more from Mike Swanson subscribe to his free technical analysis newsletter. |
| Last Updated on Wednesday, 01 September 2010 17:21 |