Financial Education

Technical analysis involves a study of past price and volume data to discern underlying trends for a security or market. The price of any asset is partly a function of supply and demand factors. If demand exceeds supply the price should rise. Conversely if supply exceeds demand the price should fall. The underlying supply and demand as well as the behavior of all investors is reflected in charts of price and volume data. A technical analyst examines these charts to determine if the current trend is expected to continue or to reverse. Technical analysis can be useful in evaluating individual securities, industries and the market as a whole.

There are many technical indicators; we will discuss only a couple of examples. A support level is a point at which buyers step in an begin buying a security. When a stock falls to this level the buyers typically step in and the security should either stay at that level or rebound (if however, the price falls below a level which has represented a support level in the past this is a negative sign). Conversely, a resistance level is a level at which the security stalls when it is rising. At this point investors are selling. A moving average line is an average of a certain number of days of prior price data. If a price is below the moving average line and moves above it, this is a positive indicator. Conversely, if the price is above the moving average and moves below it this is a negative sign.

For more information, see all articles on: Technical Analysis

See also:

Market Structure Indicators

Internet Message Board Traffic as a Technical Indicator

Approaches to Security Selection

Efficient Market Hypothesis: Semi-Strong Form

Efficient Market Hypothesis: Strong Form