Understanding Technical Analysis

Technical analysis is the study of the price movement and patterns of a security. By scrutinizing a security's past price action, primarily through charts and indicators, traders can forecast future price direction.

Frequently Asked Questions
  • What is technical analysis?

    Technical analysis is an investing method that is used to evaluate investments and identify trading opportunities in price trends and patterns by using charts. By tracking price and trading volume, investors can recognize patterns that help them guide their trading decisions.

  • What is a line graph?

    A line graph connects various data points to show specific patterns over a defined time horizon of interest for an investor, and can also be known as a line plot or line chart. For investors, the data is used to create a visual representation of a company’s historical stock price moves.

  • What is an average return?

    An average return is a measure or indicator that helps investors and analysts gauge what the returns for a particular stock or security has been over a set period of time. In sum, it is the average return calculated over a time period of interest to the investor.

  • How do you build a trading indicator?

    Trading indicators are tools that an investor can use to help gauge future performance of a stock or security. Two of the most common parts of an indicator are to build a unique indicator to uses patterns and common chart patterns to recognize trends, and to use mathematical functions to predict future support and resistance levels of stock prices.

  • What is relative strength?

    Relative strength involves selecting investments that have been outperforming the market and is used by technical analysts and value investors to inform their investing decisions. Relative strength investors generally believe that the trend of outperformance will continue, which is why they are sometimes referred to as momentum investors.

  • What is a hockey stick chart?

    In trading circles, a hockey stock chart is a price line chart that looks like a hockey stock, which depicts a sharp rise in prices after a short period of stability. As one can guess, this is illustrated by a chart that looks like a hockey stick with a short, curved blade, attached to a long stick that rises at an angle.

Key Terms
Portfolio
Average Return Definition
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Market Indicators That Reflect Volatility in the Stock Market
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How to Build a Trading Indicator
Technical Indicator Definition
What Technical Tools Can I Use to Measure Momentum?
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Understanding T Distribution
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Advanced Candlestick Patterns
Relative Strength
Comparing Simple Moving Average and Exponential Moving Average
Using Technical Indicators to Develop Trading Strategies
Divergence vs. Convergence What's the Difference?
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Ulcer Index (UI) Definition
Economy
Strategies for Trading Fibonacci Retracements
Value Added Monthly Index (VAMI)
What Does Platykurtic Mean?
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DUAL Commodity Channel Index (DCCI)
Can the Correlation Coefficient Predict Stock Market Returns?
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Tackling Technicals for Beginners
How to Use Trend Analysis
The Pioneers of Technical Analysis
Anticipate Trends to Find Profits
Technical Analysis That Indicates Market Psychology
What Is a Bar Graph?
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The Top Technical Indicators for Commodity Investing
A Stock Sell-Off Vocabulary Guide
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Hockey Stick Chart
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Technical Analysis of Stocks and Trends
Line Graph: Definition, Types, Parts, Uses, and Examples
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What Is a Price Channel?
Horizontal Line Definition and Example
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McGinley Dynamic Indicator
Adapt The 50-Day EMA To Enhance Your Trading
Average Directional Index (ADX): Definition and Formula
Bollinger Bands®: Calculations and Indications
What Is a Paper Trade? Definition, Meaning, and How to Trade
Using Bullish Candlestick Patterns To Buy Stocks
Fibonacci and the Golden Ratio: Technical Analysis to Unlock Markets
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Notional Value vs. Market Value: What's the Difference?
Exponential Moving Average (EMAV)
How Is the Exponential Moving Average (EMA) Formula Calculated?
Arithmetic Mean Definition
Average True Range (ATR) Formula, What It Means, and How to Use It
Bullish Engulfing Pattern: Definition, Example, and What It Means
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What is EMA? How to Use Exponential Moving Average With Formula
Fibonacci Retracement Levels Definition
What Is the Head and Shoulders Pattern?
Ichimoku Cloud Definition and Uses
MACD Indicator Explained With Formula, Examples, and Limitations
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Moving Average (MA): Purpose, Uses, Formula, and Examples
On-Balance Volume (OBV): Definition, Formula, and Uses as Indicator
Relative Strength Index (RSI) Indicator Explained With Formula
Simple Moving Average (SMA): What It Is and the Formula
Stochastic Oscillator Definition
What Is a Trendline in Trading?
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Support and Resistance Basics
Arms Index (TRIN) Definition and Application
What Is a Bear Trap in the Stock Market?
Capitulation: What It Is in Finance and Investing, With Examples
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Dead Cat Bounce
What Is a Stock Exchange?
Death Cross Definition: How and When It Happens