subject: Mastering The Market With Technical Analysis [print this page] When using the term technical analysis this refers to future financial price movements based on an examination of past price movements to use in stock trading. It does not result in absolute predictions of the future. It shows what might happen to prices over time.
A variety of charts "graphs" are used to prices over time, although they do not show absolute predictions about the future prices. Technical analysis is similar to forecasting the weather in that the future financial price is based on the past price movements.
Technical analysis is made use of mainly by financial professionals and traders as well as active day traders, pit traders and the market makers. Modern studies of technical analysis has proved that it gives positive results and it was noted that these results were suspect due to issues such as data spying and he study was deemed inconclusive. Many researchers still maintain that technical analysis is not consistent and is a weak form of market hypothesis.
Technical analysis is a vast topic. It is based on three assumptions - whereby history repeats itself and prices move in trends, as well as the market will discount everything. Analysts are not perturbed if stocks are undervalued; what matters is the security of past trading stats and what information the past stats can provide as to where the security will move in the future.
The best way to understand what technical analysis is that it is associated with commodities as well as forex; and the participants are dominantly traders. To understand this fully what this is and is not you have to compare technical analysis with fundamental analysis.
The discipline of security analysis forecasts future directions of prices by studying past market movements such as price and volume and only considers this. You have got to know when to buy and when to sell when it comes to investing or trading on the market. You can find the answers by looking at the technical analysis.
The correlations of changes are looked for in other areas such as options and call ratios with price. Included are sentiment indicators like put/call ratios and are then implied volatility in the technical analysis. They will foresee price movements like large gains from trading that has more or plenty but a lot less losing trades, which result in positive returns over a long period with the correct risk taken and management of money.
If the price has gone up then the trend is up, and vice versa if the price is down the trend will be down as well. When a trader finds that he cannot make a decision if the price is up or down he will declare this to be unclear. But when the prices are going back and forth across a range it is termed as sideways.
