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Technical Analysis Of Stock Data

Aug 17, 2007
To perform a technical analysis is simply examining stock chart data in order to make predictions about the future of that stock. Investors who use this style of analysis are often unconcerned about the nature or value of the companies they trade stocks in. They only invest in a stock as far as it is projected to yeild profit, then they sell all their stock.

1. The technical analysis

In order to perform a technical analysis, you have to observe how stock prices within certain industries move and interact. All the factors that influence price movement company performance, the general state of the economy, natural disasters are supposedly reflected in the stock market with great efficiency. This efficiency, coupled with historical trends produces movements that can be analyzed and applied to future stock market movements.

2. Short term investing

Technical analysis is not intended for long-term investments because fundamental information concerning a companys potential for growth is not taken into account. Trades must be entered and exited at precise times, so technical analysts need to spend a great deal of time watching market movements.

3. Upswings and downswings

There are many tools available to the technical analyst. Literally hundreds of stock patterns have been developed over time. Most of them, however, rely on the basic concepts of support and resistance. Support is the level that downward prices are expected to rise from, and Resistance is the level that upward prices are expected to reach before falling again. In other words, prices tend to bounce once they have hit support or resistance levels.

4. Charts

Technical analysis relies heavily on charts for tracking market movements. Bar charts are the most commonly used. They consist of vertical bars representing a particular time period weekly, daily, hourly, or even by the minute. The top of each bar shows the highest price for the period, the bottom is the lowest price, and the small bar to the right is the opening price and the small bar to the left is the closing price. A great deal of information can be seen in glancing at bar charts. Long bars indicate a large price spread and the position of the side bars shows whether the price rose or dropped and also the spread between opening and closing prices.

The other major type of chart that is used is called a candlestick chart, and this is used to show the slight variations between the opening and closing prices of all stocks daily. Candlesticks form various shapes that can indicate market movement. A green body with short shadows is bullish the stock opened near its low and closed near its high. Conversely, a red body with short shadows is bearish the stock opened near the high and closed near the low. Experts analyze these trends closely and invest based on their results.
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