Volume Indicators In Technical Analysis
The basic assumptions of Technical Analysis? by Webbed Master
What is Technical Analysis?
Technical analysis is a method of evaluating stocks by looking at the previous statistics of a market. Historical stock data such as price and volume are used. This method of analysis does not attempt to measure a stock’s market value, but instead uses charts and formulas to identify patterns in the stock’s price movements. This in turn can be used to predict the stock’s future price movements.
There are many different investment styles to Trading with technical anlysis. Some people rely on chart patterns, and others choose to use technical indicators such as oscillators. Some even use a combination of both. The technical analysist’s exclusive use of hisorical price and volume data sets them apart from their fundamental counterparts. Technical traders don’t pay attention to a company’s cash flow statements or financial statements. They believe a stock’s past trading data is all thats required to predict the stock’s future movements.
There are three assumptions to technical analysis:
1. The market discounts everything.
2. Price moves in trends.
3. History tends to repeat itself.
The Market Discounts Everything
This assumes a stock’s price reflects everything about the company, including fundamental factors, economic factors, and market physchology.
Price Moves in Trends
If you look at a stock chart, you’ll notice that the chart usually appears to move in a wave like pattern. The stock will usually rise, then fall, only to rise, and fall again. Technical analysts believe that after a trend’s been established, there’s a higher probability that the stock will continue trending in the same pattern than change trends.
History Tends to Repeat Itself
When it comes to price movements, history tends to repeat itself. This is mainly caused by human physchology. People generally tend to react consistently given similar market conditions.
Technical analysis is a complex Trading Strategy requiring plenty of research, and most importantly, discipline.
Once you have developed a trading strategy, you will need historical stock data to back test it, and ensure it is profitable before putting real money on it. The method does not need to be profitable every year, as the market changes. Your method needs to be profitable for the market type its designed for. e.g. A Trend Trading method needs to be profitable when the market is making big moves. A strategy based on range bound movements needs to be profitable when the market is trending sideways.
Best of luck to your future trades.
About the Author
historical stock data
Day and Swing Trading, Tech Analysis Basics
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