(a)
analysis focus on charts of price movement and various
analytical tools to evaluate a security's strength or weakness and
forecast future price changes.
(b)
analysts believe past trading activity and price changes
of a security are better indicators of the security's likely future price
movements.
(c)
analysts believe that history tends to repeat itself.
(d)
analysis is done based on technical charts, graphs and
diagrams.
(e)
chart is the simplest form of charting.
chart, a thick bar called candle is drawn in the chart.
(g)
level is the lower price level at which demand for shares
gains momentum.
In a
Answers
Answer:
Technical Analysis
By ADAM HAYES
Reviewed By GORDON SCOTT
Updated Mar 16, 2020
TABLE OF CONTENTS
EXPAND
What Is Technical Analysis?
The Basics Of Technical Analysis
The Underlying Assumptions of Technical Analysis
How Technical Analysis Is Used
Fundamental Analysis
Limitations
What Is Technical Analysis?
Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume.
Unlike fundamental analysis, which attempts to evaluate a security's value based on business results such as sales and earnings, technical analysis focuses on the study of price and volume. Technical analysis tools are used to scrutinize the ways supply and demand for a security will affect changes in price, volume and implied volatility. Technical analysis is often used to generate short-term trading signals from various charting tools, but can also help improve the evaluation of a security's strength or weakness relative to the broader market or one of its sectors. This information helps analysts improve there overall valuation estimate.
Technical analysis can be used on any security with historical trading data. This includes stocks, futures, commodities, fixed-income, currencies, and other securities. In this tutorial, we’ll usually analyze stocks in our examples, but keep in mind that these concepts can be applied to any type of security. In fact, technical analysis is far more prevalent in commodities and forex markets where traders focus on short-term price movements.
KEY TAKEAWAYS
Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities in price trends and patterns seen on charts.
Technical analysts believe past trading activity and price changes of a security can be valuable indicators of the security's future price movements.
Technical analysis may be contrasted with fundamental analysis, which focuses on a company's financials rather than historical price patterns or stock trends.
Understanding Fundamental Vs. Technical Analysis
The Basics Of Technical Analysis
Technical analysis as we know it today was first introduced by Charles Dow and the Dow Theory in the late 1800s.1 Several noteworthy researchers including William P. Hamilton, Robert Rhea, Edson Gould, and John Magee further contributed to Dow Theory concepts helping to form its basis. In modern day, technical analysis has evolved to included hundreds of patterns and signals developed through years of research.
Technical analysis operates from the assumption that past trading activity and price changes of a security can be valuable indicators of the security's future price movements when paired with appropriate investing or trading rules. Professional analysts often use technical analysis in conjunction with other forms of research. Retail traders may make decisions based solely on the price charts of a security and similar statistics, but practicing equity analysts rarely limit their research to fundamental or technical analysis alone.
Among professional analysts, the CMT Association supports the largest collection of chartered or certified analysts using technical analysis professionally around the world. The association's Chartered Market Technician (CMT) designation can be obtained after three levels of exams that cover both a broad and deep look at technical analysis tools. Nearly one third of CMT charter holders are also Certified Financial Analyst (CFA) charter holders. This demonstrates how well the two disciplines reinforce each other.2
The Underlying Assumptions of Technical Analysis
There are two primary methods used to analyze securities and make investment decisions: fundamental analysis and technical analysis. Fundamental analysis involves analyzing a company’s financial statements to determine the fair value of the business, while technical analysis assumes that a security's price already reflects all publicly-available information and instead focuses on the statistical analysis of price movements. Technical analysis attempts to understand the market sentiment behind price trends by looking for patterns and trends rather than analyzing a security's fundamental attributes.
Charles Dow released a series of editorials discussing technical analysis theory. His writings included two basic assumptions that have continued to form the framework for technical analysis trading.
Markets are efficient with values representing factors that influence a security's price, but
Even random market price movements appear to move in identifiable patterns and trends that tend to repeat over time.3
Today the field of technical analysis builds on Dow's work. Professional analysts typically accept three general assumptions for the discipline: