Technical Analysis
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Technical Analysis
Everyday, all over the world things are moving. People have needs and wants and often fulfill them by exchanging goods. This then chances the price medium to which ever demand is in greater, to buy or to sell. This phenomenon is known as the supply and demand theory. The equity markets are in fact a large auction with bidders and buyers constantly exchanging financial equities between buyers and sellers. This transaction creates a set price exists only till the next exchange between buyers and seller occur and the new price is determined. The goal and reason for efficiency in this scenario of the markets is to produce the best possible price at the time. The NYSE, NASDAQ, CBOT, MERX and other exchanges in foreign countries make up are called “the markets”. Inside the markets are individuals purchasing for their own purpose and or for major institutions, such as a mutual fund company or a commodity trader purchasing 10 tons of corn for Kelloggs Cereal. Though you could be buying stock in a company, often times the stock and the company move separately. “Among the hardest lessons for investors to understand is that ones perception of a company and how the market values its stock are often two very different things” says Kevin Marder, who is chief market strategist at Ladenburg Thalmann Asset Management in New York.
With that aside one of the core reasons for this idea and market to exist is along with best price is to make a profit. One of the key foundations to technical analysis is that since the market is controlled by humans, human behavior is ever present in the overall action of the market in whole and in individual stock or commodity price flucations. Therefore, price moves in trends, market action discounts all things, and history repeats itself in which is then applied to supply and demand. (when supply exceeds demand price lowers and when demand exceeds supply, price increases). “The analyst relies on all sorts of buy-and-sell signals that have to do with the relationship of moving averages and the spotting of distinct patterns on stock charts, these can take the form of rectangles, triangles, rounded tops and bottoms and the famous head and shoulders.”
Understanding this allows you to comprehend that with these factors in play at all times there is a probability that certain actions will create the same response from individuals on a large scale. This is the edge that makes technical analysis a popular subject and practice. Technical analysis looks at price stock charts and depicts whether or not he feels that the stock is overbought or oversold. In which he will take a position and in hopes gain a profit. The analyst uses tools that gauge and measure activity on average anything above or below average to a certain extremity alerts analysts that there is possibility that the stock will move back to “normal”. The analysts is armed with an array of market tools and averages based on very long statistical formulas to gauge the market, individual stocks or commodities. Some examples would be the simpler moving average indicator takes the closing prices and is then divided by a certain length in time. Then to a somewhat more complex one:
Each analyst uses his or her personal choices for each situation and scenario.