What Is Technical Analysis In Trading

When I first studied how to analyze stocks and stock positions there was little information out there about what is technical analysis in trading.

Remember in last week's video, we broke down what fundamental analysis was and how to use it.

These days most of my trading is based on technical analysis. For the most part, I trade stock options and tend to hold those positions long term.

What technicals do for me is they allow me to predict price movements with a fair degree of accuracy.

For that reason, I believe getting really good at this type of analyzing is critical to being able to be profitable in trading.

What is Technical Analysis in Trading?

So first, let's define what technical analysis says - also referred to as target.

Why is it referred to as target? Because that is what we are doing - analyzing what we see on stock charts for clues on how to treat positions.

When you use technical data. you're attempting to predict price movements by examining historical data from the charts, and technical study the behavior of the market and participants.

It's an eye opener for you, price movements of stock, seldom have anything to do with the underlying company's fundamentals. A great company could have a terrible day in the market while a terrible company on paper could have a boost on that same day.

It's all about seeing how the market is moving.

Okay, so let's talk technical analysis.

You want to look for support and resistance areas.

Stock prices go up and they go down. And it's when they approach these support and resistance areas that they tend to revert to go the opposite direction. Why do they do this?

Well, I think is because all traders see those areas and they all make assumptions that prices are gonna reverse about there.

Reading Stock Chart Patterns

The next thing I want you to get good at is reading chart patterns.

Stock prices tend to all set patterns up and down. Again, the reason is because of a trading group, called the trading herd, and the assumptions they make.

You and I have to act like like great poker players sitting at a table in Las Vegas.

What we're doing is not looking at the cards, we're looking at the players. And when he tells what he is doing, that's when we decide what we're doing. We are looking at "tells".

In the same way, we look at the charts. We are looking for tells of the trading group through technical analysis.

Moving averages also play into reversal areas for the same reason. Everybody sees those moving averages. Volume is one of the most important aspects of trading.

Listen carefully to what I'm about to say. Trading volume moves prices up and down.

One last technical tool I encourage you to become good at is candlestick charting.

Today, you've learned some basic concepts. Now, each of these concepts is going to take you some time to learn and more time to learn to use well.

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I hope you enjoyed learning about What is Technical Analysis in Trading!