Technical Chart Analysis - How to Anticipate Change in the Market

Posted: May 30, 2010 |Comments: 0 |

People get involved with stock market investing at different times in their life, but no matter how much you've decided to put into your portfolio, or whether you've decided to manage your trading all on your own, or leave it in the hands of a professional broker, it's safe to say that your motivation was probably to make your money grow faster than it would be able to in a high yield savings account or certificate of deposit. Profit is the driving motivation for all stock market activity, and if you're going to learn how to use changes in the market to achieve this goal, it's important that you learn as much as possible about technical chart analysis.

No matter what industries you're interested in, or whether you're focusing on long term investments or day trading, it's important that you have a working knowledge of technical chart analysis and how it can be used to help you anticipate and exploit price movements in the stock market. To start, you should know that technical analysis is the practice of predicting future price movements by analyzing past price fluctuations, and identifying the trends and patterns that are most likely to repeat themselves.

Technical chart analysis is based on three fairly simple assumptions about the stock market and how it is most likely to move. Becoming comfortable with these assumptions will help you to understand why technical analysts make the trading decisions that they do. First, technical analysis assumes that the market is able to adjust for outside influences on its own, meaning that company stability, public demand and financial history can all be represented in the price. Second, technical analysis assumes that the market is inclined to move in trends and gaps or reversals will only happen when an outside force exerts its influence. Lastly, technical analysts assume that history is likely to repeat itself, which means that past patterns are likely to resolve themselves in the same manner that they have in the past.

Although technical chart analysis is the most popular method for market evaluation among short term traders, it isn't the only way that you can inform your decisions about which stocks to buy and when to trade them. Many investors also used fundamental analysis to decide which securities have the most potential for long term success, but this requires a great deal of qualitative research and is most popular among commodities or income investors.

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