Technical Analysis

A technical analyst does not care about the fundamentals of a stock. In other words, whether a company reports record profits or sales does not matter to the technical analyst in making a decision on whether to buy or sell stock. What matters to the technical analyst is how the stock price has behaved in the past and how the price is currently behaving. This behavior is typically recorded in the form of a bar chart, which is the technical analyst's tool of choice. The reasoning for this is as follows.

A technical analyst believes that all known information about a stock is already reflected in the stock's price. A technical analyst believes that the market has already discounted the stock to reflect exactly what the stock is worth at specific point in time. A technical analyst attempts go back in time a view a chart that contains the history of a stock's price. What the technician is really looking for is a pattern in the chart. This pattern is really a behavior pattern. The technical analyst attempts to use a stock's behavior in order to predict the future direction of a stock.

When looking at the price of the stock on a chart, certain price patterns are formed. There are many types of patterns that indicate positive behavior. There are many types of patterns that indicate negative behavior as well. The technical analyst attempts to use these chart formations in decisions to enter or exit a stock position.

This may all sound simple. However, the patterns generally are not that simple to see. An technical analyst has to interpret the pattern. This is ability to interpret patterns is not a science but rather an art. This is primarily the focus of this site. The next very brief sections cover the concept of trend and chart patterns. To get a better understanding though, there are many good books on the subject.