What is Technical Analysis?
"Technical analysis is the examination of past price movements to identify patterns of price movements..."
Technical analysis is the examination of past price movements to identify patterns of price movements. Technical analysts are sometimes referred to as chartists because they rely almost exclusively on charts for their analysis.
How To Use Technical Analysis?
Using technical analysis to predict the market is the wrong concept. Many people believe that by identifying patterns formation, they can predict the price movement. THEY CAN BE WRONG ! No one can predict the market, not even Investment gurus. No one can predict where and when the market is going to move. The market tells investors what to do, when to move, when to enter or exit.
Chart Analysis
Technical analysis can be as complex or as simple as you want it. The example below represents a simplified version. Since we are interested in buying stocks, the focus will be on spotting bullish situations.
Indicator Analysis
"The same indicator may exhibit different behavioral patterns when applied to different stocks..."
What is an Indicator?
An indicator is a series of data points that are derived by applying a formula to the price data of a security. An indicator offers a different perspective from which to analyze the price action. Indicators serve three broad functions: to alert, to confirm and to recognise patterns. As always in technical analysis, learning how to read indicators is more of an art than a science. The same indicator may exhibit different behavioral patterns when applied to different stocks.
Top Down Technical Analysis
For each segment (market, sector and stock), an investor would analyze long-term and short-term charts to find those that meet specific criteria. Analysis will first consider the market in general, perhaps the Composite/Emas index. If the broader market were considered to be in bullish mode, analysis would proceed to a selection of sector charts. Those sectors that show the most promise would be singled out for individual stock analysis.
