Technical Analysis Explained by TechniTrader
Technical Analysis is the study of the movement of Price and Quantity over time in investing instruments. Put simply, it is Chart Study. Charts are available for Stocks, Exchange-Traded Funds (ETFs), Indexes, Futures, E-minis, Forex, Mutual Funds, Pink Slips, Bulletin Board Stocks, and more from the Stock Market Learning Center.
It is not a crystal-ball approach to the markets, as many think. It is anticipating future price action based on the sentiment that has been typical for a trading instrument in the past.
Yes, the SENTIMENT of the investors in a stock or other investing vehicle can be uncovered through studying how much price moves up or down, and how many shares are bought or sold as price moves up and down. In the same vein, we can also see in the charts WHO is buying and selling.
The reason is because there are distinct groups of investors who each have different agendas and access to information, as well as WAYS of buying and selling that are reflected in the way Price and Volume move over time.
Charles Dow, who was the father of the Dow Theory, identified just 3 Market Participant Groups at that time. Today, there are 9 different Market Participant Groups each with various resources, goals, and habits of buying and selling investments.
Much of the time, the Fundamentals which tell us how much money the company is making and how much growth potential a company has, are built right into charts. This is because there are specific Market Participant Groups with a particular way of trading, who buy and sell at particular points in the trend of a stock. Risk/Reward Analysis is also built into the charts to tell us how many points are at risk on an entry versus how much reward there is to be gained.
So as you might imagine, Technical Analysis is the kingpin of how we teach investing and trading at TechniTrader. Technical Analysis gives individual investors and retail traders concrete facts about how a stock price moves so that they can invest at the right time and hold on or sell at the right time. It is an invaluable skill set no investor should be without, and it is easy to learn with the right training.