Technical Analysis Theories & Methodologies
There are many different Technical Analysis Theories and Methodologies that have been developed over the years. The first concept was developed using a simple line chart of the end-of-day price with a smoothing mechanism, the simple moving average.
At the time, moving averages were first used by technical analysts for studying price action on stocks and/or indexes. The goal was very simple: to determine if the long term trend was still intact.
When the price line dropped below the moving average, the analyst was able to determine that the trend was no longer intact and that a shift from upside trending to downside trending had occurred.
- Technical Analysis & Future Stock
UTherefore, attempting to predict the future stock or index movement based on technical analysis theory, by itself, is not reliable. As an example, many people still believe that the stock market or the economy has a 4-year cycle of trending up to trending down.
- Students & Technical Analysis
Students of technical analysis must do due diligence and be careful to avoid theories that claim predictive capabilities, forecasting capabilities, use non-scientific concepts such as astrology, or other unreliable theoretical concepts. Not every book written and not every theory promoted for technical analysis is reliable or proven.
- Indicators & Technical Analysis
A “stock indicator” is a formula derived from the data stream of transactions that occur in the various venues of the stock market. Price, Time & Quantity along with the Stock Symbol and the buyer and seller are recorded every time a stock is bought or sold. Stock indicators are formulas written by mathematicians and/or technical analysts to obtain a specific indication or different analytical view of either price or quantity.