Technical Analysis

Technical Analysis is a common method people use to trade stocks online. It's a method of using historical price action to predict where prices will go in the future. Understanding how and why the markets move is an important process in learning technical analysis.

Stock movement is based on supply and demand. If more traders are buying stocks then selling stocks, the price moves up. The opposite is true in downward movements. If sellers out weigh buyers, then the price is going to move down. The idea behind technical analysis is that history repeats itself. So by using stock charts to look at past data, you can have a better understanding as to where it is going to move in the future.

Using technical indicators is a form of technical analysis. These indicators calculate past price and or volume data to give you a bigger picture. Whether it is a momentum oscillator such as stochastics, or a moving average, these indicators can help you determine which side to be on a trade. Other technical indicators like the VWAP or Volume Weighted Average Price take not only price into consideration, but volume as well. This can give you an idea of where most of the volume is occurring.

Support and resistance is another part of technical analysis. These areas are where either buyers or sellers begin to overtake the other and prices begin to reverse. Prior support and resistance will likely provide that same support or resistance in the future. Knowing these areas can give you higher probability trades with less risk.

Markets do not move in a straight line, but more of a trend involving peaks and troughs known as waves. By understanding the trends and drawing trendlines, this too can help you with entries and exits in you stock trades.

Most online stock trading packages give you tools to help analyze stock movement. These tools are what technicians use when studying technical analysis. These tools can identify trends, support and resistance, buying pressure vs selling pressure, momentum, strength, and weaknesses of a stock or instrument. Most of these tools come free with your stock trading platform. Be sure to study online tutorials on how to best use these tools to your advantage. You can also get instruction from your online broker. Most of them offer these services to their customers.

By using a basic knowledge of how the markets move, and studying historical data you can get a good understanding of every stocks behavior. This in turn will help you become a more successful online trader. Whether you are a day trader, swing trader, or long term investor, technical analysis will help you become a better trader. It does take hard work and review of hundreds if not thousands of charts. But the more you study the better you will be. The bottom line is that people will always react on emotions, it's what makes the market move and these emotions never change. So technical analysis will always have a role in effectively trading stocks.

TradeStocksAmerica Staff

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