TECHNICAL ANALYSIS

Technical analysis is the analysis of chart patterns formed by the stock prices. Technical analysts or Chartists as some call them, analyse the patterns from various charts and derive at future predictions. Based on the trend lines formed by these charts they are able to suggest whether to hold, sell or buy stocks.

Fanatic technical analysts do not look at fundamentals of a company at all. These quantitative analysts or chartists only analyze the stock prices, volume traded and psychological indicators over a period of time to arrive at conclusions.

One can frequently hear the mention of the following terms from the talks of a technical analyst:

Support Level – This results from the inability of the chart lines to break below the previous lows.

Resistance Level – This results from the inability of the chart lines to surpass the previous highs.

Simple Moving Averages – A simple moving average is the average of the closing prices over Nth period. This is done so as to smooth the fluctuations of less than Nth period.

For example, if we are analyzing the price trends aver a one month period, the daily fluctuations of stock prices can be made smooth by taking the average of the opening and the closing stock price for that day. This gives us a price chart which does not display the daily volatility in stock prices.

There are famous and commonly used techniques like:
1) Head and Shoulders
2) Double Top and Double Bottom
3) Febonacci Series
4) Eliot Wave
5) Bollinder Bands, et al