What's The Connection? Stocks And Technical Analysis

By: Jesse Profit


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.

The school of fundamental analysis looks at the companies financial prospects, whether the desired results are achieved, and how it stacks up to the competition. Alternately, technical analysis has been used due to its success even though it is primarily unscientific. Well, what's the connection regarding both stocks and technical analysis?

Simply put, technical analysis studies past trends in the market. These trends are then used to help figure out what a future of a stock's price may be. However, this entire question with regard to the connection between stocks and technical analysis is still unanswered. What allows people to think that the price of stocks can be predicted by just looking at graphs and chart? Doesn't the companies overall condition and its financial outlook help in determining or predicting stock prices?

Some of this stems from technical analysis being used by market analysts who can downgrade stock or anticipate higher earnings. Trading stock is influenced not only by the markets daily swings or isolated events, but actually how markets move with time and the fallout from some of these events are cumulative, therefore experienced over time periods.

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.

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