There's a lot ways to analyze whether an investment is good or not, or when it is convenient to buy or sell it. The general market, economic data, financial statements and fundamentals can be factors beneficial to examine when considering a new investment, be it a stock or other type of investment. safety. But one of the main ways that heAnalysts and investors determine good investments it is through the technical study of a project.
Unlike fundamental counterpart analysis, technical study examines things like trends and price movement to analyze the viability of a potential investment. But what really is technical study?
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In this article you will find:
Definition
The technical study of a project is a process used to examine and predict the future prices of securities looking at things like price movement, charts, trends, trading volume, and other factors.
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Unlike fundamental analysis, technical study focuses on trading signals to outline good investments and business opportunities by examining the trends of an investment through its trading data and other statistical elements.
As a general rule, the technical study values the current or past price of a security as the best indicator of the future price of that security. Also, this type of study is largely based on financial charts, data and statistics to uncover an investment's strengths or potential weaknesses and forecast trends to help analysts and investors decide whether or not a security is viable, and for what action.
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Fundamentals of technical study
Since the technical study focuses on price, movement, volume and trends, there are several basic aspects and charts that technical analysts analyze rather than things like financial statements, which analysts analyze fundamental.
Here are some of the basics of technical study and how they are used to analyze stocks:
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Price
One of the most important factors that technical analysts analyze is the price of the security. In fact, price action is the main measure considered when conducting the technical study.
Technical analysts begin by examining charts showing a security's price and trading volume to observe its historical performance and help predict future movements. The basic function of using charts to examine stocks or other values is to identify trends on investment price or trading volume and how those trends change over time. weather.
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Chart patterns and analysis
As the bread and butter of technical study, chart patterns are one of the main ways that analysts examine and predict where stocks or securities will trade in the future.
One of the most important parts of charts for technical study is the so-called "trend line", which shows the general price trend of a security. Also, things like "spike analysis" and "moving averages" can help investors or analysts get a better prediction of what stocks are going to do.
While the graphs seem very mathematical, they are actually based on plotting and giving a visual representation of the investor emotion and market psychology, which represent movements in prices throughout the weather.
There are several types of charts that technical analysts examine, including candlestick charts, line charts, bar charts, and more.
Volume
Another important factor used in technical study is volume. The volume is simply the number of shares or contracts that are traded for a certain value for a certain period of time, which is generally one day.
For technical study, looking at the volume of a stock or security can help analysts determine the strength of a stock. price movement or trend by showing the number of stocks that are trading in that direction (up or down under).
Volume is expressed as a bar chart at the bottom of a financial chart below the price line (the red and green bars in the charts above). The higher the bar, the higher the trading volume.
In addition to helping to confirm or show the strength of trends and price movements, volume can help confirm patterns of charts such as so-called 'triangle' or 'head and shoulders' patterns (two types of technical patterns that measure the price or trade of a security trends).
Types of technical study
In general, there are two main approaches to examining stocks:
Top-down approach
When analysts analyze stocks through a top-down approach, they generally analyze values from a broader point of view to more specific, often going from looking at a major index like the S&P 500 to sector charts to weekly or hourly charts specific to certain stocks.
Technical analysts continue to examine increasingly specific charts to determine which stock looks like a good investment.
When using the top-down approach, technical analysts examine the moving averages of a stock or security over a more general time frame. to specific, such as starting by looking at daily averages and then moving on to examining the hourly averages of a stock's price movements determined.
For example, a trader might start by looking at how a security is doing on a daily chart. If it is bullish on a daily basis, the trader could look at its hourly chart to find an optimal entry point for the action.
Bottom-up approach
In contrast, a bottom-up approach to technical study includes looking for potentially undervalued stocks and examine them more fundamentally to find an entry point where the stock appears to have bottomed out.
Technical analysts use the bottom-up approach to see stocks that do not take into account the overall trend from the market, then they look for entry or exit points that put them in the best position to make money with a name determined.
