Technical analysis is the outlook of how future financial price will move based on an examination of past price movements. Technical analysis is a lot like a weatherman predicting it will rain or snow or if the favored team in the Super Bowl will cover the spread. You can gather the info you have and make an educated guess or assumption.

Charts are used in a technical analysis to show over a larger period of time how much a price has rose, fallen are stayed the same. Some of the charts used are the Line Chart, which is the basic chart type is a single point plot of the securities price.

Next up is the Bar Chart, which is most popular method of plotting a security price. A bar chart provides a plot of each price unit (open, high, low and close) for each period. The last example is the Candlestick chart, which is plot of the security price using all the four price points (open, high, low and close)

To keep up with discussing the importance and impact of charts in technical analysis, here are the things a chart helps us discover:

Overall Trend: This is accomplished by using trend lines, peak analysis or moving averages.

Support: Areas of the congestion and also areas of previously low, below current price marks support levels.

Resistance: Areas of the congestion along with previously high above current price mark and the resistance levels.

Momentum: Momentum is usually used to measure the oscillator along with such things as MACD.

Buying/Selling Pressure: Selling pressure becomes dominant when it falls below zero.

Relative Strength: This plot on this lineline over a larger period of time is able to tell you if the stocks are outperforming or rising as many call it or under performing or falling from the major index.

When talking about technical analysis, there are three rules of thumb and those are: Price serves as a discount, Price Movements happen for a reason and what is more important than why.

The first rule of technical analysis is “Price serves as a discount.” The main thesis here is that whatever the price is now, it reflects all the information. It’s like the theory “keep it simple, stupid. The current price represents fair and even value and can be the barometer for analysis.
The second step of technical analysis is “Price Movements happen for a reason.” This is the act of trying to predict when the market will fluctuate without probable cause and being able to spot when the spike on free fall will happen.

The last step regarding technical analysis is “What is more important than why.” This step is self explanatory, the current price is more important that the history of the price. Think about it, the price is the end result of the battle between the amounts of stock is available from a company versus the amount pf demand there is for that stock. . The objective of analysis is to predict the where the future price will go.

In the end, technical analysis is to stock what an inside reporter is to a football game. It’s a venue to obtain inside information so you can make an educated guess.

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