Conclusion & Resources
There have been entire volumes of textbooks written on technical analysis. This tutorial just scratches the surface. Technical analysis is one of those fields where everyone has a different theory on what works and what doesn't. If we can leave you with one last tip, it is to back test whatever strategy you decide to pursue. Back testing means looking back at several years' worth of charts to see how a particular stock reacts. Different stocks do different things, so be sure to do your homework first.
Here are a couple points to remember about technical analysis:
- Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, past prices and volume.
- The advantage of using a bar chart over a straight line graph is that it shows the high, low, open and close for each particular day.
- One of the most basic and easy to use technical analysis indicators is the moving average, which shows the average value of a security's price over a period of time. The most commonly used moving averages are the 20, 30, 50, 100 and 200 day.
- Support and resistance levels are price levels at which movement should stop and reverse direction. Think of Support/Resistance as levels that act as a floor or a ceiling to future price movements.
- There are literally hundreds of different price patterns and indicators out there.
- In our humble opinion, technical analysis is a terrific tool, but much more effective when combined with fundamental analysis.