What is Technical Analysis

Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, past prices, and volume. Technical analysts do not attempt to measure a security's intrinsic value. Instead they look for patterns and indicators that will determine a stock's future performance.

Technical analysis has become popular over the past several years as more and more people believe that the historical performance of a stock is a strong indication of future performance. The use of past performance is not surprising. People using fundamental analysis have always looked at the past performance by comparing fiscal data from previous quarters and years to determine future growth. The difference lies in the technical analyst's belief that securities move with predictable trends and patterns. These trends continue until something happens to change the trend, and until this change occurs, price levels are predictable.

Some technical analysts claim they can be extremely accurate a majority of the time. There are many instances of investors successfully trading securities with only the knowledge of its chart and without even understanding what the company does. Technical analysis is a terrific tool, but most agree that it is much more effective when combined with fundamental analysis.

Let's look at some of the major indicators technical analysts use.