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If you are planning to invest in the stock market, know that it is essential to have some background of how this market moves. You can’t just trust your broker to do everything. In fact, you have to know exactly what you’re doing, if you’re going to gain anything from your investment. If you’re starting small, the more you should begin educating yourself, and one of the most important lessons you have to learn is technical analysis of stocks.

What is Technical Analysis of Stocks?

Technical analysis generally involves looking into the movements of prices in the market and anticipating how they are likely to affect prices within a specific timeframe. It is, to some extent, a prediction of how the market is likely to behave within a certain timeframe. However, technical analysis is not absolute, meaning; any market prediction can fail. Technical analysis is typically used to manage accounts in stock, commodities, futures, forex or any other traded instrument where price is largely dependent on supply and demand. Some analysts though would also consider volume or open interest figures as important factors. Price in this context is defined as any combination of open, high, low or close occurring for a certain security over a period of time, which can be anywhere from one minute to one year or even many years.

What Goes Into Stock Technical Analysis?

It is said that there is no single element that is at the center of stock market technical analysis. In fact, there could be a combination of three elements, first of which is price. According to experts, price is pretty much all that is needed to see a market clearly. It is the one true representative of how market participants, from traders to fundamental analysts, think price should be at a particular point. Thus, it forms the sole basis for predicting future market actions. Second, price can be more scientific than people think. This has something to do with trends being reliable indicators of where a market is headed, although they remain unbolted as well. Third, the way price is moving is always more important than why it is moving that way. Everybody knows that price is the result of supply and demand, so it is futile to over-rationalize.

Stock Technical Analysis and the Bottom-line

A technical analyst may use various principles in analyzing charts, indicators and other concrete facts that point to a particular market direction. However, it can all be simplified by going down to the basic requirements for analysis - the price, where it came from and where it’s headed. Even so, technical analysis of stocks can be more accurately described as an art rather than a science because it is not exact and therefore, not foolproof. A prediction may be based on actual price movements, but it will ultimately hinge on the analyst’s perception of such behavior. In other words, even the evaluation of the best technical analysts in the world are not infallible because there is no real gauge as to whether or not a prediction is correct until such time that it proves to be correct or not.

You may have no plans of building a career as a technical analyst. However, if you’re investing in stocks or any other tradable instrument, a good overview of technical analysis can mean a huge difference in your investment’s performance.

You may have no plans of building a career as a technical analyst. However, if you’re investing in stocks or any other tradable instrument, a good overview of technical analysis can mean a huge difference in your investment’s performance.