Technical analysis is a way of looking at the past performance of a stock or market in order to predict future price changes.
Unlike fundamental analysis, which focuses on economic indicators and company-specific factors, technical analysis looks at price movements over time.
A lot of people tend to shy away from technical analysis because it doesn’t seem “real” or scientific like fundamental analysis does.
However, technical analysts often outperform buy-and-hold investors because they’re able to determine when prices are likely to rise or fall based on recent history.
In this article, we’ll cover what technical analysis is all about and how you can get started doing your own TA!
What Does Technical Analysis Look At?
Technical analysis looks at the price and volume of a security, along with open interest and time intervals (minute, hourly, daily or weekly).
It also analyzes indicators like moving averages and MACD.
Technical analysis is based on the idea that historical price data can be used to predict future prices.
The premise is that large numbers of traders react in a similar way when they see patterns in the market.
Large numbers of investors may cause stock prices to move up or down due to their buying pressure on those stocks.
This can result in trends such as bull markets, bear markets, and sideways markets.
How Does Technical Analysis Work?
Technical analysis is a way to predict future market moves by studying past price movements.
It is based on the assumption that historical prices are a useful indicator of future prices.
Technical analysts study chart patterns and indicators in order to determine what the market may do next.
They rely on statistical indicators, pattern recognition, and other tools to help them make their predictions.
For example A technical analyst might look at a stock chart’s “head and shoulders” pattern as an indication that it will soon decline in value; while another analyst might look at the same data points but interpret them differently, seeing instead an “upward trend reversal.”
The importance of this distinction can’t be overstated: technical analysis only works if you’re able to correctly identify those patterns!
How Do I Use Technical Analysis?
The first step in technical analysis is to use a charting tool to look at the price history of the asset.
You can analyze it on a daily basis, weekly basis, or even monthly basis.
Next, you want to look for patterns and trends in the price movement.
For example, if a stock keeps moving up and down between $20-$25 over a long period of time then you know that it’s not going anywhere and it’s probably going to stay right here where it is right now.
The same thing applies when you see a stock trending upwards towards its 52-week high or downwards towards its 52-week low – this could be an indication that something important has changed about this stock (like earnings results) so we’d better watch this closely!
You also want to keep an eye out for support and resistance levels: These are levels where there’s been repeated buying/selling activity by many people over time so these levels tend to act as barriers when trying to predict future price movements.
What Kinds Of Tools Do I Need To Use Technical Analysis?
So you are all set, then! You have your charting software ready to go and a trading account to trade.
However, do you know what kind of technical analysis tools you need?
To use technical analysis effectively, you will need:
- A brokerage account with access to the market where you want to trade.
- A money market fund or bank account (to keep all of your profits).
Are There Any Disadvantages To Using Technical Analysis?
There are disadvantages to using technical analysis. For example, it is not a perfect science.
The markets are unpredictable and can be manipulated by many different factors, including emotions and psychology.
Also, it’s very difficult to forecast the future movement of prices with any measure of certainty because markets move in trends that can last long periods of time and then reverse course suddenly without warning.
Is Technical Analysis Effective For All Markets?
The answer to this question is a resounding “Yes!” Technical analysis can be effective for any market and any trader.
However, it is not always effective for every market and every trader, which is why we need to examine some of the factors that determine whether technical analysis will work for you.
First, let’s look at markets: Some traders find that technical analysis works better on certain assets than others.
For example, if you are trading stocks or commodities (such as gold), then you may find it easier to use charts than if you were trading currencies or bonds (as they tend to have fewer price movements).
Similarly, some traders prefer short-term strategies while others favor longer-term ones; so if one particular strategy doesn’t feel right for your personality type or time horizon then perhaps another one would suit you better.
Can I Use Technical Analysis For Long-Term Investments (Like Mutual Funds Or Stocks)?
Yes, you can use technical analysis for long-term investments.
You can use it to help you decide when to buy, sell, or hold.
For example, if the market is trending up and your technical indicators tell you that this trend will continue in the near future then it would be a good idea to consider buying now because prices are likely to go up in the near future.
However, don’t make short term trades because they are much more risky than investing over long periods of time (usually months).
Do I Need A Computer To Do Technical Analysis?
Yes, you do need a computer in order to do technical analysis.
While there is nothing stopping you from doing it the old-fashioned way with pen and paper, what’s the fun in that?
There are many different kinds of tools available to help you with your TA research.
Some people use Excel spreadsheets while others prefer more robust applications such as Tradervue or TradingView.
The most important thing here is that whatever tool you choose works for you and allows you to access the data and charts that matter most to your trading strategy.
How Do I Get Started With Technical Analysis?
Once you have a good understanding of what technical analysis is and how it works, the next step is to actually start doing it.
There are a few things that you should know when getting started with technical analysis:
- The indicators used by most traders are very similar, but different traders use different indicators for their own reasons.
- When learning how to apply technical analysis, keep in mind that there are many different ways of interpreting charts and many different tools available for analyzing charts. For example: some people will look at RSI (Relative Strength Index) while others prefer Bollinger bands; some people like MACD over moving averages while others swear by Fibonacci retracement lines; etc.
We hope this information has helped you understand how technical analysis works and whether or not it’s right for you.
If so, then we encourage you to get started today! There are many free resources online where you can learn more about the subject.