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Introduction to Technical Analysis

Introduction to Technical Analysis

Table of Contents

What is Technical Analysis?

John Murphy defines Technical Analysis as “the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends.” Market action refers to price, volume, and open interest data. While analysis of this data can’t make absolute predictions about the future, studying the past price movements on a chart can help technical analysts anticipate what is “likely” to happen to prices going forward.

What is Technical Analysis?

  • Why Analyze Securities?What’s the “best” way to invest? We discuss the three types of market analysts and how you can understand investment from a “big picture” perspective.
  • Technical AnalysisWhat is Technical Analysis? We explain what Technical Analysis is, how it works, and the general steps one should take when using technical charts and indicators to analyze stocks.
  • Fundamental AnalysisWe look at the theory behind Fundamental Analysis and the general steps fundamental analysts take when evaluating stocks, concluding with a look at the strengths and weaknesses of the fundamental approach.
  • Random Walk vs. Non-Random WalkCan you really outperform the market? We compare the Random-Walk Theory of financial markets and its counterpart, the Non-Random Walk Theory, while considering how these competing concepts impact Technical Analysis.
  • Asset Allocation and DiversificationWhat’s the best way to minimize your risk while trading? We look at how asset allocation can be combined with technical analysis to ensure a strong trading portfolio.

 

"Must-Read" Technical Analysis Articles

  • Technical Analysis 101A short course in the basic tenets of the field, designed to provide newcomers with a working background of technical analysis.

The Psychology of Investing

  • Irrational ExuberanceDescribes the findings in Robert Shiller’s behavioral finance book Irrational Exuberance, which looks at the cultural and psychological factors that influence the decision-making process when investing in stocks, using the 2000 stock market bubble as a case study.
  • Cognitive BiasesA look at eleven of the most powerful and common cognitive biases faced by both the average individual throughout daily life and investors in today’s financial markets.
  • MulticollinearityA look at how to avoid having two very similar signals on the same chart and the importance of doing so.
  • Bob Farrell’s 10 RulesWall Street veteran Bob Farrell of Merrill Lynch teaches investors to think outside the box with his 10 rules of investing.

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Technical Analysis

  • Chart Analysis
  • Candlestick Patterns
  • Price Trend Analysis
  • Support and Resistance Tools
  • Indicators and Oscillators
  • Technical Analysis Glossary
  • Technical Analysis FAQ’s

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