About Technical Analysis

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Should I buy today ? What will prices be tomorrow, next week, or next year ? Wouldn't investing be easier if we know the answers to these seemingly simple question ?

        Carefully picking and buying common stocks and holding on to them for the long term can prove to be very rewarding in terms of dividend growth and capital appreciation. However, the market can be even more lucrative and rewarding if the investor is resourceful and willing to learn the technical analysis to improve his or her investment.

        Technical analysis is a tool which has been used by many fund managers throughout the world to help them manage multi million dollar portfolios. This is the same tool that allows the individual investor to gather more relevant and useful information in helping him or her make an investment decision. Based on the premise that history will repeat itself if you recognize the patterns, studying the charts provides you with quantifiable and flexible methods of forecasting.

        The philosophy of Technical analysis is that share prices do not move randomly, rather they move in repeating and identifiable patterns. One can use this information to gain an edge on other investors and make money in the stock market.

        Technical analysis is the process of analyzing a security's historical prices in an effort to determine probable future prices. This is done by comparing current price action with comparable historical price action to predict a reasonable outcome.
        The three key principles upon technical analysis is based are :
        1.  Everything is discounted and reflected in market prices.
        2.  Prices move in trends and trends persist.
        3.  Market action is repetitive.

        The foundation of Technical analysis is the chart. The chart represents a detailed and comprehensive map of the market and its individual stocks. It is the most useful tool that the trader can rely on. Once the trader has learned how to analyze the chart, he or she can then use it to consistently reduce risks and improve profits.

The conclusion
        Financial markets move in trends caused by the changing attitudes and expectations of investors with regard to the business cycle. Since investors continue to repeat the same type of behavior from cycle to cycle, an understanding of the historical relationships between certain price averages and market indicators can be used to identify turning points. No single indicator can ever be expected to signal all trend reversals, and so it is essential to use a number of them together to built up a consensus.
        This approach is by no means infallible, but a careful, patient, and objective user of the principles of technical analysis can put the odds of success very much in favour of the investor or trader who incorporates these principles into an overall investment strategy.

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