Investor’s View Magazine

Understanding Technical Analysis Fundamentals

By Mike Swanson

Technical analysis is how I made a fortune in the stock market.

When using the term technical analysis this refers to future financial price movements based on an examination of past price movements. It does not result in absolute predictions of the future. It shows what might happen to prices over time.

There may be trading rules and models for technical analysis which is estimated on price and volume transformations which include regressions, strength index and moving averages. The correlations between inter and intra market prices will be recognized from the stock chart patterns given.

Technical analysis is only interested in the market price movements, it makes analysis of the company characteristics and estimates the company's value or commodity. In other words a study is done on supply and demand in a specific market, and determines in which direction or trend it will rear to in the future. The market is studied itself in order to understand the emotions and not the components of the market. This enables you to be a better trader or investor.

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.

When we see the AOL this means a downward movement in price. When stocks rise in price, you find the sellers then come in and sell their stock, which creates this up and down movement in price fluctuation, which technical analysis terms lower lows and lower highs and determines stock going on a down trend.

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.