A brief introduction to Technical Analysis.
Technical Analysis is a form of market analysis used to help anticipate changes in the directional movement of a security. One will make use of technical analysis in order to help identify and exploit recurring trends. Through use of Technical analysis, we aim to identify the following things;
• Where a trend may start.
• Where a trend may end.
• Where a trend may by liable to reverse or change in direction.
Technical Analysis focuses solely on price and volume through use of charts/graphs to identify recurring patterns and their impact on price movement. Through the study of past market data, we are able to forecast price direction and forthcoming trends. It is part based on human and crowd behaviour as investors and traders are seen to react to events in a similar way throughout the course of time. "History doesn't repeat itself but it does rhyme" Mark Twain. For example, a major shareholder sale may have adverse effects on other investors. The market is heavily influenced by shifts in the supply and demand as we try to digest and react to such information.
There are many methods of technical analysis available and those used will vary depending on an individuals trading/investing style as well as how susceptible to risk they may be. Some of the most commonly used methods are;
• Moving Averages
• Chart Patterns
• Volume Indicators
• Momentum Indicators
• Support and resistance levels