Technical Analysis And Stocks: The Connection

Trying to figure out what any stock, at any given time in the world will do, as far as price movement up or down can be daunting. Well, to help with this quandary there are two different methodologies used. However, the one that has proven most reliable over many decades has been that of fundamental analysis.

This type of analysis looks at the financial prospects of a company, and then looks at their chances of achieving desirable results compared to its competition. On the other side of the fence, there are some in the school of thought involving technical analysis, a largely unscientific but seemingly successful school of thought as well. So, what exactly is the connection between technical analysis and stocks?

If you can believe it, technical analysis is simply the studying of past market trends to make a determination as to what the future of the stock's price is going to be. But, that still doesn't answer the whole question - what is the whole connection between technical analysis and stocks? More importantly, how can people think they can predict the price of a stock from looking at charts and graphs and not the financial health or condition of a company?

Well, part of the reason that technical analysis is utilized by some market analysts is that, although one would think that statistically speaking a trading day on the stock market should only be influenced by that day's events and treated like an independent event, the reality is that most market movement trends over time and the full impact of one event (a downgrade of the stock by an analyst or a movement of earnings higher than expected by the same analysts) is never isolated to one day.

The utilization of much data is primarily what technical analysis consists of. The monitoring of trading volume charts, older stock quotes, including much more data helps in the development of graphs and charts to help determine how long a particular move in a company can continue and also the specifics of stock market trading.

When compared to each other, fundamental analysis and technical analysis of the same stock market gives much different results. Fundamental analysis is considered a long term or \"long\" predictor in markets. Technical analysis is considered a short term or \"short\" predictor in markets.

Overall, technical analysis is more detailed due to the large amount of terminology used which describes existing trend lines and graphical shapes. Typical investors without the knowledge needed can be easily discouraged when trying to comprehend this type of data. For example many terms used to describe trends are ambiguous and used interchangeably (e.g. elbow, shoulder). This can denote upswings or downswings with leveling off at intervals. This can make it harder for interpretation.

In conclusion, the question still remains, \"What's the connection between technical analysis and stocks?\", how is it determined and on what basis? How can these tools be used daily and made easier to comprehend. Although, technical analysis is not as accurate and can be very subjective, it has been successful so it makes it hard to dispute that it is still a viable tool used in market analysis.

Article Source: ArticlesMaker.com

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