Dynamic Technical Analysis
Technical analysis focuses on the stock price and its patterns. It differs from fundamental analysis in that it is primarily concerned with historical price and volume trends to predict the future. Traders use fundamental analysis to decide what to trade and technical analysis to determine when to trade it. Dynamic technical analysis "ignores" the actual nature of the company, market, currency or commodity and is based solely on "the charts," that is, price and volume information, whereas fundamental analysis looks at the actual facts of the company, market, currency or commodity.
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Function
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Technical analysis is almost completely visual. It doesn't require a degree in finance or economics, nor does it require exceptional skills in mathematics. Technical analysis uses visual aids and charts to help identify demand (support) and supply (resistance) levels as well as breakouts. Traders who can pinpoint resistance (top) and support (bottom) levels can greatly improve profitability.
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Purpose
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The goal of dynamic technical analysis is to forecast price trends in the future based on historical data. The smaller the time increments, the more dynamic the analysis. Any private investor can access technical analysis tools in order to compute his trading decisions.
Theories/Speculation
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Technical analysis is based on the premise that price discounts every aspect and all information in the market; it is based on the theory of efficient markets. From a theoretical perspective, it is based on the belief that price movements are never completely arbitrary and therefore must follow some sort of identifiable trend.
Technical Indicator Types
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Technical indicators are additional tools used by the technician in order to develop price forecasts. Technical indicators, or "technicals," are distinguished by the fact that they do not analyze any part of the fundamental business, like earnings, revenue and profit margins. Technical indicators are used most extensively by active traders in the market, as they are designed primarily for analyzing short-term price movements.
Uses
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Technical indicators are used to know when to enter or exit a trade; however, no indicator is foolproof, especially in a dynamic market. To minimize false signals, where subsequent price movement differs from what is expected from the indicator, it is often combined with other tests or with other indicators and market data to increase reliability. One commonly used indicator is "momentum." Momentum indicators are oscillating indicators and can help in clearly identifying whether a position or stock is overbought as well as oversold.
References
- Photo Credit "The Tide Will Rise Bruce Hornsby and Pat Metheny mean speed=79.7 beats per minute - meanspeed modern tempo map 3" is Copyrighted by Flickr user: Ian Andrew Schneider (Ian Andrew Schneider) under the Creative Commons Attribution license.
