Technical Analysis 101

By Michael Swanson

Technical analysis is the name given to one of the techniques use to forecast how prices are likely to perform moving forward in the stock market. It works by analyzing data of past performance, using various criteria. Most often the criteria focused on are price, volume and time. Much of the study is completed through the study of charts, and analysts are often referred to as "chartists" for this reason. WallStreetWindow.com specializes in it.

For many, technical analysis lacks any real theory that underpins it, and is subsequently without credence. However, others argue that its results are justification enough, and point to its correlation to behavioral finance.

Many detractors however do not accept this, and inquire as to why no automated programs have been able to come out of this work; suggesting therefore it is not a stable nor reliable process.

A lack of evidence that technical analysis was the sole reason for successful strategy trading has also been held up for discussion in the camp against its merits. However, chartists argue that back testing evidence has been delivered; simply that it is not understood by the detractors.

The basic argument for those supporting the technique, is that it just makes sense to study past performance, pricing trends, and any areas where upon a variant and a constant can be linked. Trends in the markets do occur regularly; this is just an accepted fact; understanding where these trends are going to recur is merely applying a technique.

However, whilst different opinions are rife across many bodies; one thing does seem to bring both group together; that technical analysis should not necessarily be relied upon solely. And this is only sensible of course. After all, there are not many of us out there that go out foraging, only to place all of our eggs in just the one basket. - 23218

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