Stock Analysis: Technical Analysis of Stock Charts

Stock Market Technical Analysis

What is Stock Analysis?:

Stock Technical Analysis is a study of mass psychology. It is partly a science and partly an art.

Individual behavior is complex, diverse, and difficult to predict. Group behavior is primitive.

Technicians study the behavior patterns of the stock market crowds. They trade when they recognize a pattern that preceded past market moves.

Technical analysis vs Fundamental analysis: Which is better?

Fundamentals, while important, do not help the stock trader assess risk and timing issues in the present and now.

This is where technical analysis documents, stock analysis and stock market charts outshine the fundamentals. However, both disciplines can be used to compliment each others strengths.

Every stock move is driven by one of three emotions:

  • fear

  • greed

  • uncertainty

Uncertainty is the pit stop between fear and greed, the two most dominate emotions.

When the most dominant group of stock traders in a stock are being driven by greed, the stock will rise.....when the most dominant group of stock traders in a stock are being driven by fear, the stock will sink.....and when the most dominant group is uncertain, the stock will stabilize and the stock price will remain flat.

In other words, we in effect are not trading stocks, we are trading people!

That's technical analysis fundamentals.


Follow The Money


Stock Technical Analysis Money Flow

Technical analysis of stock market companies is also the art of following the flow of money.

Stock market analysis is the examination of price past movements to forecast future price movements.

Technical analysts believe that the current stock price fully reflects all information. Because all information is already reflected in the price, it represents fair value and should form the basis of analysis.

A technician believes that it is possible to identify with a trend and make money as the trend unfolds. Because stock analysis can be applied to many different time-frames, it is possible to spot both short-term and long-term trends.

Technical analysts are concerned with two things:

1. What is the current price?

2. What is the history of the price movement?

The price is the end result of the battle between the forces of supply and demand for the company's stock. The object of technical stock analysis, is to forecast the direction of the price.

Technical analysts consider the stock market to be 80% psychological and 20% logical.

Fundamental analysts consider the stock market to be 20% psychological and 80% logical.

Psychological or logical may be open for debate, but there is no questioning the current price of a stock. The price set by the stock market reflects the sum knowledge of all participants.

And these participants have considered (discounted) everything under the sun and settled on a price to buy or sell. These are the forces of supply and demand at work.

By examining price action to determine which force is prevailing, stock technical analysis focuses directly on the bottom lines:

  • What is the price?
  • Where has it been?
  • Where is it going?

Stock analysis is more an art form than a science. As an art form, it is open to interpretation and each stock trader should use only that which suits their style and personality.

Developing a technical style takes time, effort and dedication, and the rewards can be great!

In the end, successful stock trading stands on three pillars:

1. You need to analyze the battle between the bulls and the bears.

2. You need to practice good money mangement.

3. You need discipline to follow your trading system and avoid getting high in the markets.

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Technical Analysis of the Financial Market

For further in-depth information, the book Technical Analysis of the Financial Markets by John Murphy, contains everything you need to know to help you learn to use and read stock charts and stock technical analysis in a clear, simple and concise manner to improve your stock trading success.

This book thoroughly covers all the new techniques in charts and charting and the many recent developments in this fast-changing field including:

  • The fundamentals of technical analysis and chart construction

  • What you must know about trends and the building blocks of chart analysis

  • Price patterns, including major reversal and continuation patterns

  • Methods of analysis -- moving averages, oscillators, contrary opinion, and other indicators

  • Time cycles, market interrelationships, money management, and trading tactics
  • Learn More Here




Technical Analysis Tools and Resources

Click for the recommended Technical Analysis Tools and Resources.

Click for the recommended Stock Technical Trading Software.


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