Technical Analysis is the study of supply and demand in the stock market, by comparing the history of stock price movements and volume (the number of shares traded). Understanding the way the price moves in relation to the Open, High, Low, and Closing Prices on a given minute, hour, day, week, or month and comparing that to the volume can give an insight into future market direction. The data required is usually displayed in a stock chart, so it is easily consumed.
Using Technical Analysis
The science/art of technical analysis usually fall into different areas of study:
- Supply & Demand – Stock Price Movement vs. Volume
- Trend Following – understanding what trends are
- Waves & Cycle Analysis – understanding how markets move
- Stock Charts – Price – plotting price in charts to understand the history of the stock, share or market index using bars, candlesticks, or point and figure charting.
- Trend Interpretation – drawing trend lines – support and resistance Lines
- Price Indicators – the study of price based chart indicators or oscillators known as Stochastics, Relative Strength Index (RSI), Rate of Change (ROC), Moving Averages (MA), Moving Average Convergence Divergence (MACD), Parabolic SAR, and the Average Direction Movement Index (ADX).
- Study of Volume – understanding how the level of volume has a relationship with the price – and how the price has a relationship with volume.
- Study of Price Volume Indicators – On Balance Volume (OBV), Chaikin Money Flow (CMF), Time Segmented Volume (TSV), MoneyStream.
- Market Sentiment – understanding the madness of crowds
If taught correctly, technical analysis can help you understand one side of the stock market equation. This is the “effect” part of the cause and effect equation.
Technical Analysis Studies:
- What – What has just happened
- Effect – Not the cause
- Market action – what is happening “real-time” at the moment
The next course in this series focuses on technical analysis and how to use it.
To be successful, you need to understand technical analysis and supply and demand.