To perform a technical analysis is simply examining stock chart data in order to make predictions about the future of that stock. Investors who use this style of analysis are often unconcerned about the nature or value of the companies they trade stocks in. They only invest in a stock as far as it is projected to yeild profit, then they sell all their stock.
1. The technical analysis
In order to perform a technical analysis, you have to observe how stock prices within certain industries move and interact. All the factors that influence price movement company performance, the general state of the economy, natural disasters are supposedly reflected in the stock market with great efficiency. This efficiency, coupled with historical trends produces movements that can be analyzed and applied to future stock market movements.
2. Short term investing
Technical analysis is not intended for long-term investments because fundamental information concerning a companys potential for growth is not taken into account. Trades must be entered and exited at precise times, so technical analysts need to spend a great deal of time watching market movements.
3. Upswings and downswings
There are many tools available to the technical analyst. Literally hundreds of stock patterns have been developed over time. Most of them, however, rely on the basic concepts of support and resistance. Support is the level that downward prices are expected to rise from, and Resistance is the level that upward prices are expected to reach before falling again. In other words, prices tend to bounce once they have hit support or resistance levels.
4. Charts
Technical analysis relies heavily on charts for tracking market movements. Bar charts are the most commonly used. They consist of vertical bars representing a particular time period weekly, daily, hourly, or even by the minute. The top of each bar shows the highest price for the period, the bottom is the lowest price, and the small bar to the right is the opening price and the small bar to the left is the closing price. A great deal of information can be seen in glancing at bar charts. Long bars indicate a large price spread and the position of the side bars shows whether the price rose or dropped and also the spread between opening and closing prices.
The other major type of chart that is used is called a candlestick chart, and this is used to show the slight variations between the opening and closing prices of all stocks daily. Candlesticks form various shapes that can indicate market movement. A green body with short shadows is bullish the stock opened near its low and closed near its high. Conversely, a red body with short shadows is bearish the stock opened near the high and closed near the low. Experts analyze these trends closely and invest based on their results.
Stocks and shares can be a very lucrative source of income, provided you are well aware of how to play the game by conducting a thorough technical analysis of stocks! However, with the Internet also plunging into the world of finance, more and more people like you are getting into online trading. And why not? Trading in stocks is definitely an excellent way to grow yourmoney; it provides an extra source of income!
Here are some features associated with stock trading and technical analysis of stocks--
(1) What exactly is meant by trading in stock?
Most companies need ongoing capital to keep running their businesses. So they offer their stocks to interested traders. If you are an investor, you put in money (small amount or large amount) of your own and purchase those shares. You are now a stock holder or a shareholder in the company; actually, a partial owner of the company since you have purchased a part of the company.
(2) The reason for buying stock is that you believe the company will prosper and the price of the stock will go up in the future. Thereby, you get your share of the profit.
To illustrate with an example, Microsoft was not very well-known in the 1980s. Yet, some people bought its stocks and retained them for a very long time. Today, the company's value as well as the value of those stocks have shot up beyond anyone's imagination!
(3) Again, all companies (old and young) that promise future profits need not necessarily deliver. There is no guarantee about gains and losses, especially if it is a newly-launched company. The only thing is that as a shareholder, you have some say in running the company!
Of course, if the said company is facing bankruptcy or law suits, you can say nothing except face the certainty of losing your money, as the value of the stocks will tend to be low or become totally worthless!
(4) If you are the lone investor, a broker will need to act as the mediator for all transactions. These go-betweens do the buying and selling of stocks on your behalf, taking a small commission in the process. Even then, they are only acting upon your instructions; they are in no way concerned with decision-making.
(5) Since this can become quite a headache, it is advisable for you to go in for technical analysis of stocks beforehand. What this means is, studying the forecasts of stock prices and movements of the stock market. The idea is for you to understand what is going to happen in future to the stock you are already holding, plus the future trend of any new stock that you are planning to purchase.
(6) Technical analysis of stocks is an extremely powerful tool in your hands, since it will help to lessen risks and increase gains. Also, you attain some sort of security in the trading business since the charts display past prices of stocks as well as what the future prices could be.
(7) At the same time, You will have to ensure that the information that you get is absolutely reliable. If the information related to trend reversals and the times they are expected is incorrect, you are putting yourself at risk and also losing out on profits which may be coming from another direction.
(8) A particular stock could be bearish, bullish or neutral. Where will this information come from, except from the technical analysis of stocks?
(9) Another reason for going in for technical analysis of stocks is that you are not the person in charge of market prices, and they will keep rising or dipping constantly. Whatever stock you intend to purchase at any given time, is going to be high-priced or low-priced. At least, the analysis keeps your forewarned!
(10) Finally, given all its benefits, technical analysis of stocks can never claim to be 100% accurate. It can only predict the outcome of particular stocks. Hence, use this only as a guide, not as a be all and end all for your stock trading encounters!
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