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 Introduction
to Technical Analysis
Technical analysis is a method of forecasting price movements
by looking at purely market-generated data. Price data
from a particular market is most commonly the type of
information analyzed by a technician, though most will
also keep a close watch on volume and open interest in
futures contracts. The bottom line when utilizing any
type of analytical method, technical or otherwise, is
to stick to the basics, which are methodologies with a
proven track record over a long period. After finding
a trading system that works for you, the more esoteric
fields of study can then be incorporated into your trading
toolbox.
Almost every trader uses some form of technical analysis.
Even the most reverent follower of market fundamentals
is likely to glance at price charts before executing a
trade. At their most basic level, these charts help traders
determine ideal entry and exit points for a trade.
They provide a visual representation of the historical
price action of whatever is being studied. As such, traders
can look at a chart and know if they are buying at a fair
price (based on the price history of a particular market),
selling at a cyclical top or perhaps throwing their capital
into a choppy, sideways market. These are just a few market
conditions that charts identify for a trader. Depending
on their level of sophistication, charts can also help
much more advanced studies of the markets.
On the surface, it might appear that technicians ignore
the fundamentals of the market while surrounding themselves
with charts and data tables. However, a technical trader
will tell you that all of the fundamentals are already
represented in the price. They are not so much concerned
that a natural disaster or an awful inflation number caused
a recent spike in prices as much as how that price action
fits into a pattern or trend. And much more to the point,
how that pattern can be used to predict future prices.
Continued |
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