Technical Analysis focuses on trend, support and resistance, and momentum through the use of chart reading to help investors and traders get into and out of higher probability trades. Using the tenets of Technical Analysis traders are able to engage in higher probability trades with defined entries and exits.

The following all focus on different core aspects of Technical Analysis:

 Chart Patterns:

Chart Patterns, also known as Price Patterns, are recognizable patterns that form on charts that consist of variations of support and resistance. Each pattern gives a glimpse into the market psychology that causes the formation of the pattern and can be used to identify profitable trades.

Candlestick Patterns:

Candlestick Patterns are type of formation that appears on any chart when using “candlestick bars” to represent the open, high, low, and close of a specified time period. These patterns are used in conjunction with other areas of support and resistance to help identify areas of potential price reversal.

Technical Indicators:

Technical Indicators and Oscillators are tools used to help investors identify price trend and momentum. These tools are used by traders to help determine the health of a current trend as well as areas where a trend may be weakening.

Stock Analysis:

Stock Analysis is simply charting the trend, support and resistance, momentum, and other factors of an individual stock to help determine potential entry and exit points on any proposed trade.

Trading Strategies:

Technical Analysis Trading Strategies in their simplest form consist of: Trend Trading, Momentum Trading, Price Pattern Trading, and Candlestick Trading to name a few.

What Is Technical Analysis?

Stock Technical Analysis can be defined as an investing discipline that attempts to identify investment opportunities by analyzing the market’s physical behavior, such as price movements, volume, and open interest.

The short and sweat version is that technical analysts, also known as market technicians, use charting techniques to analyze past market prices in order to forecast future price changes.  Through this forecasting, technical analysts identify investment opportunities.

3 Basic Tenets of Stock Market Technical Analysis:

1.      Market Action Discounts Everything

2.      History Repeats Itself

3.      Prices Move in Trends

Let’s further discuss these tenets because they directly answer the question of “What Is Technical Analysis?”  The first of these three is that market action discounts everything.  What does this mean?  This means that the price of a stock or option is always trading at the exact price determined by supply and demand.  For example, if XYZ stock is about to pay a dividend, misses earnings, has a CEO change, etc… this information is immediately priced into the stock by the buyers and sellers provided that there is plenty of liquidity.

The 2nd tenet means exactly what it says, history repeats itself.  There have been stock market crashes, epic rallies, periods of market stagnation, recessions, depressions, straight up market rallies, and much more.  And, you can guarantee that all of these trading environments will happen again in the future.

The 3rd tenet states that prices move in trends.  This concept of Market Technical Analysis lends itself to market psychology.  Let’s face it, people are the ones who decide when to buy and when to sell stocks or options.  Whether that is someone at home sitting in their underwear clicking the “buy” button on their computer or a computer program that is set to buy or sell 1,000,000 shares if XYZ breaks the $38 price area.  People are making these decisions and people tend to “herd” together.  This “herd complex” is what leads to prices moving in trends.

So, Now You May Be Asking What Are the Benefits of Stock Technical Analysis?

Clarity

When you Learn Technical Analysis this can help to eliminate an important enemy to any investor or trader – ambiguity.  Once you understand the concepts of Chart Technical Analysis you can start to operate under very specific rules.  In these rules, you will know when to enter a trade and when to exit a trade

Simplicity

The Beautiful thing about Technical Analysis is that it really is simple.  And, once you learn the concepts, identifying support and resistance becomes a very quick process.  Then, you can apply any number of simple systems to make money.  This is the exact opposite of the time consuming fundamental analysis process of pouring over financial records to try and determine a future price of stock through a financial statement.

Flexibility

The flexibility of Technical Analysis changes the game from traditional buy and hold mentality.  This is due to the fact that Technical Analysis is just as easily applied to bearish markets as it is to bullish markets.  This fact alone leaves is something that fundamental analysis has no way to compete with.

Universality

Technical Analysis can be applied to virtually any market where there is a supply and demand as long as one thing exists – liquidity.  This means that once you can answer the question of What Is Technical Analysis and become an expert you can apply this knowledge to virtually any liquid market.  You won’t have to learn anything new by moving into a new market or type of scurrility.  You can apply this knowledge to trading stocks, options, bonds, currency, or futures with the same knowledge and applications.

As you can see from the list above, applying the concepts of Technical Analysis provides you with Clarity, Simplicity, Flexibility, and Universality.  So, the more proficient you become in this discipline, the more successful you will become as a trader or investor.

Now that you can answer the question, “What Is Technical Analysis” it’s time you take that a step further by signing up for the Technical Analysis Mini-Course below.