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• Technical Analysis in Trading

  Technical Analysis is another method of investment strategy used by many stock traders to assess stocks. In this this method, price actions of particular stocks in markets are being studied and analyzed with the use of charts and quantitative techniques in order to forecast price trends. This method makes use of past market data of the stock in terms of its price and volume regardless of the company’s financial prospects and fundamentals.Concept
  The concept behind technical analysis as a means to determine stock valuation and p[rice trends is based on the assumption that the price and market activity of the stocks is a primary reflection of all the relevant factors before an investor becomes aware of what is happening through other channels. Traders using technical analysis to base their stock buying and selling decisions believe that how the stock behaves in the market in terms of its activity past and present may be an indicator of what is actually happening to a company even before any official announcements can be made. This way, traders may be able to get very useful information early on, provided that they analyze the market activity of certain stocks as accurately as possible.

  Difference from Fundamental Analysis
  Technical analysis is a different method from fundamental analysis in the means that they try to forecast stock worth and valuation. A trader using technical analysis will base stock value by looking at the statistical charts of stock price and volume over a period of time. Fundamental analysis try to look at a company’s balance sheet, financial and income statements as a means to gauge a stock’s future market value.

  Traders who are into technical analysis believe that there is no need to look into a company’s business fundamentals to gauge its stock valuation since all these factors will be reflected on the stock price itself. They believe that all the information about the company and how it behaves in the market can be indicated by how the stock price itself behaves within a time frame.

  History
  The use of technical analysis in observing financial markets has been dated back to the methods used by 18th Century Japanese traders where charts were used to observe price changes in rice. And even at present time, the Japanese are known to largely depend on technical analysis to forecast prices in their own stock exchange, the second largest stock market in the world.

  The development in computing technology and software has led to the increasing growth of technical analysis. Since statistical charts and data can now be furnished faster, technical analysis has now been used not only to monitor stocks but also other financial markets such as commodities, bonds, and currencies.

  Posted in Investing

  This entry was posted on Wednesday, May 14th, 2008 at 11:37 am and is filed under Investing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

  May 14th, 2008 /

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