Technical analysis is the understanding of the price action of a company’s underlying stock. It utilizes various charts and statistical indicators to determine price support and resistance, range and trends. It identifies historically relevant price patterns and performance to help forecast potential direction of the stock. This methodology focuses only on the price of the shares, not the operations of the company.
How Does Technical Analysis Work:
By using historical price data, technical analysis attempts to interpret the supply and demand that moves share prices. Technical analysis visually trails the activity of the stocks using various charts and indicators to pinpoint price areas of strong interest both in terms of buying and selling. History tends to repeat itself as confirmed by price patterns.
Anyone who trades or invests in the stock market or any other tradable financial instrument should consider learning at least a basic level of technical analysis. Technical analysis will help trader make better-informed decisions as to how much risk to employ for how much potential reward.
Basics of Technical Analysis:
Technical analysis rivets and utilizes various tools and indicators. The tools can be used to generate converging signals that improve the probability of a direction price move.