What is Technical Analysis?
Technical analysis is a method
of evaluating securities by analyzing statistics generated by
market activity, past prices, and volume. Technical analysts
do not attempt to measure a security's intrinsic value. Instead
they look for patterns and indicators that will
determine a stock's future performance.
Technical analysis has become popular over the past several
years as more and more people believe that the historical performance
of a stock is a strong indication of future performance. The
use of past performance is not surprising. People
using fundamental analysis have always looked at the past performance
by comparing fiscal data from previous quarters and years to
determine future growth. The difference lies in the technical
analyst's belief that securities move with predictable
trends and patterns. These trends continue until something happens
to change the trend, and until this change occurs, price levels
are predictable.
Some technical analysts claim they can be extremely accurate
a majority of the time. There are many instances of investors
successfully trading securities with only the knowledge of its
chart and without even understanding what the company does.
Technical analysis is a terrific tool, but most agree that it
is much more effective when combined with fundamental analysis.
Let's look at some of the major indicators technical analysts
use.
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