- The NASDAQ is an exchange that was formed by the National Association of Security Dealers in February 1971. The company is owned by NASDAQ OMX group and has a ticker symbol of NDAQ. The exchange is regulated by the U.S. Securities and Exchange Commission (SEC).
- Many traders and investors perform technical analysis on NASDAQ stocks. Technical analysis is the art of studying historical price performance in an effort to predict future price performance. Technical analysts or technicians use a wide variety of tools to determine the future direction of prices. The most common forms of technical analysis are pattern recognition and trend following.
- Pattern recognition, or chart pattern recognition, is a form of technical analysis where the analyst determines if a specific pattern in current price action is similar to past patterns of price action. Once this is determined, the technician will use the price action that immediately followed the prior historical patterns to determine which path future prices are likely to follow. An example of a price pattern that is widely used among technicians is a "head and shoulder" pattern. This price pattern typically looks like prices have formed two shoulders, a left and right shoulder, and a head in the middle. Once prices break below the neckline of the head and shoulder pattern, prices generally fall to lower levels. A second price pattern that is commonly used is a trend line break-out pattern. In this type of pattern, the technician will drawn a line connecting recent lows or recent highs. When current prices break through the slope of the trend line, prices usually continue in the same direction of the price break.
- Trend-following analysis is a type of technical analysis study that tries to determine if prices are currently in a trend compared to a range. A trend is defined as a direction of prices that continues to perpetuate over a period of time. There are numerous ways to determine if prices are in a trend. One common way to measure if a trend is beginning to form is to use a moving average crossover technique. This analysis uses a short-term moving average and a long-term moving average to define a trend. A moving average of prices is the average over a specific period of time where on each new day the last date is dropped from the average. For example, in a 10-day moving average, on day 11 the first day is dropped from the calculation. When a shorter moving average crosses above a longer moving average, prices can be considered in a trend.
- It is important for an investor to determine which technical indicators conform to her trading style. If an investor is successful at finding technical indicators that fit her style, there is a strong likelihood that she will have some success in her trading endeavors.
