Technical Analysis is a method of analyzing securities and making investment decisions by analyzing historical chart actions such as volume and price action. Instead of analyzing the value of an underlying security, technical analysis aims to identify patters which predict future activity.
If you have visited the fundamental analysis section of Minc Trading, you will know there are plenty of indicators used to analyse companies on a fundamental basis and technical analysis is no different.
Various indicators are available to the chartist including:
- Indicators
- Oscillators
- Chart Patterns
- Volume
Generally chartists use a combination of several indicators to gain a clearer picture of a stocks trend.
Technical analysis is based on three assumptions:
The market discounts everything
Price moves in trends
History tends to repeat itself
The Market Discounts Everything
Technical analysis assumes the share price of any given stock, at any given time, reflects all available information that could potentially affect a share price. Rather than be concerned with why prices move, chartists consider the trends or patterns on the chart.
Price moves in trends
Markets are not always efficient in a sense that information is not always available to everyone in a timely fashion. As a result prices may adjust gradually as more people become aware of any news. Technical analysis aims to identify and trade on these trends.
Human Nature is Constant
History tents to repeat itself. Often this is shown in share price movements, as people tend to react the same way, each time they encounter the same situation. According to history, these patterns can be analyzed to predict the future.
Short or Long Term technical Analysis.
Although charts can be used to predict both long and short term trends, here at Minc Trading, we use technical analysis as a tool to predict support and resistance levels and can therefore set entry and exit levels in the short term. Charting is also useful when setting stop loss and price targets.
Types of Charts
A line chart is the simplest type of chart, and is created by drawing a line over the closing price for each day.
Bar
A bar chart is a series of vertical bars created by plotting the open, high, low and close price for each day.
Candlestick
A candle stick chart shows similar information as the bar chart, however displays it in a different fashion. It is the preferred type of chart for Minc Trading and is used in all our recommendations. It portrays all of the price action for each day easily, in each tick on the chart.
Volume
Volume is also considered when charting, as it can be used to confirm a particular trend. For example, a break out on high volume is considered far more significant than a break out on low volume.