Technical Analysis

Technical Analysis

Technical analysis is basically a discipline for forecasting the future direction of prices through the study of past market data, primarily price.

If you have never seen a stock chart showing something other than a straight line then you’d take one look at it and say “What the…” and instantly dismiss the idea of using them because it looks too complicated.  That’s exactly what I did.  But let me tell you… the information the charts can reveal is somewhat amazing.  Not only do the charts say what is happening at the very moment, but it is staggering to see how the current price action relates to it’s historic price action.  I don’t intend to provide any tutorials on technical analysis because there are so many courses out there and it would be such a mammoth task. Feel free to post any opinions or questions etc.

Here is my take on Technical Analysis, thanks to Dr Barry Burns:

Take anything on the markets, a stock for example. People will invest in stocks all for different and personal reasons. Why? Maybe because a friend told them to, maybe its because the company is doing well and are recording record profits, maybe its because they are in the news and having lots of exposure. So what is the most important factor that would help chose what stock to invest in? For me personally, it is what ever the charts are telling me. Why?

It is humans that cause the price actions of anything that moves which is captured as it happens on the charts, and not necessarily by a companies earnings.  Ok, they may have an influence but at the end of the day it is a worldwide group of individuals that are responsible for the movements be it mums and dads or the multi-million fund managers. So where am I going with this and how does it relate to technical analysis.

Given it’s humans that move the markets it’s important to understand the psychology of such groups of people relating to that specific chart, but essentially it is being able to distinguish between the “mum and dad’ traders and the big guns such as the fund manages that trade enough volume to influence the moves.