Stock Market Research: Technical Analysis
Stock Market Research: Technical Analysis
Technical analysis is widely used by private traders, although many stockbrokers and an increasing number of investment funds also utilise this form of analysis. Basically, technical analysis is only about the price, and understanding how is moves today should give us an understanding about how it might move tomorrow.
The use of technical analysis and its effectiveness is based on a number of assumptions about the way the market operates. They are:
- The market price calculates the impact of all the news that drives buyers and sellers
- Human nature is constant, so investors generally react in similar ways to similar situations, which in turn creates repetition in certain price patterns
- Prices are not random and will generally move in trends for significant periods of time.
Technical analysis assumes that all the factors that influence the price of a security have already been factored into place.
This is why technical analysts never concern themselves with why prices go up or down. More interestingly, this is also one of the reasons why often the price will be a leading indicator of published information.
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