About_Technical_Analysis - About Technical Analysis The...

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About Technical Analysis The stock market or any market never reflects what its true value is . It reflects investors perception of the value or what people think it is worth. A technical analyst doesn't look at income statements, balance sheets, company policies, or anything fundamental about the company. The technician looks at the actual history of trading and price in a security or index. This is usually done in the form of a chart. The security can be a stock, future, index, or a sector. It is flexible enough to work on anything that is traded in the financial markets. The technical analyst believes that the market price reflects all known information about the individual security. It includes all public and insider information. The market price reflects all the different investor opinions regarding that security. So what's the big deal? Just as fundamental analysis looks at the past, technical analysis also incorporates the past into its analysis. True. However, the technical analyst believes that securities move in trends. And these trends continue until something happens to change the trend. With trends, patterns and levels are detectable. Sometimes the analysis is wrong. However, in the overwhelming majority of instances, it's extremely accurate. Many times I've successfully traded securities with only the knowledge of its chart behind me. I didn't know what the company did. But the underlying technicals indicated a direction to me. The technicals were right. The tools of the technical analyst are indicators and systems which are used on price charts. Moving averages, support and resistance lines, envelopes, Bollinger bands, momentum. .. are all examples of indicators. These indicators all tell a story. Many people believe that buy and hold is the right strategy for owning securities. I don't agree with that. ABC might be a company you want to own for the long term. That's great. However, there's nothing wrong with buying at 50; selling at 67; and buying it back at 55. There's also nothing wrong with buying at 50; selling at 67; shorting the stock at about 67; then closing your short at 55 and buying back the security. In the latter, you've made your money work a little more efficiently. In the case of the former, you've made money when the stock was going up, coming down,
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This note was uploaded on 04/14/2010 for the course FINANCE fnce 305 taught by Professor Proftujun during the Spring '10 term at Singapore Management.

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About_Technical_Analysis - About Technical Analysis The...

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