Understanding Technical Analysis

Technical analysis is the study of the price movement and patterns of a security. By scrutinizing a security's past price action, primarily through charts and indicators, traders can forecast future price direction.

Frequently Asked Questions
  • What is technical analysis?

    Technical analysis is an investing method that is used to evaluate investments and identify trading opportunities in price trends and patterns by using charts. By tracking price and trading volume, investors can recognize patterns that help them guide their trading decisions.

  • What is a line graph?

    A line graph connects various data points to show specific patterns over a defined time horizon of interest for an investor, and can also be known as a line plot or line chart. For investors, the data is used to create a visual representation of a company’s historical stock price moves.

  • What is an average return?

    An average return is a measure or indicator that helps investors and analysts gauge what the returns for a particular stock or security has been over a set period of time. In sum, it is the average return calculated over a time period of interest to the investor.

  • How do you build a trading indicator?

    Trading indicators are tools that an investor can use to help gauge future performance of a stock or security. Two of the most common parts of an indicator are to build a unique indicator to uses patterns and common chart patterns to recognize trends, and to use mathematical functions to predict future support and resistance levels of stock prices.

  • What is relative strength?

    Relative strength involves selecting investments that have been outperforming the market and is used by technical analysts and value investors to inform their investing decisions. Relative strength investors generally believe that the trend of outperformance will continue, which is why they are sometimes referred to as momentum investors.

  • What is a hockey stick chart?

    In trading circles, a hockey stock chart is a price line chart that looks like a hockey stock, which depicts a sharp rise in prices after a short period of stability. As one can guess, this is illustrated by a chart that looks like a hockey stick with a short, curved blade, attached to a long stick that rises at an angle.

Key Terms
Technical Analysis: Triple Tops and Bottoms
Portfolio
Average Return
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Market Indicators That Reflect Volatility in the Stock Market
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How to Build a Trading Indicator
Technical Indicator: Definition, Analyst Uses, Types and Examples
Metrics
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ETF Analysis: The iPath S&P 500 VIX Futures
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Advanced Candlestick Patterns
The Rectangle Formation
Relative Strength: Definition in Investing and Stock Analysis
Understanding Exponential Moving Average vs. Simple Moving Average
Using Technical Indicators to Develop Trading Strategies
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Divergence vs. Convergence What's the Difference?
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Ulcer Index (UI)
Economy
Strategies for Trading Fibonacci Retracements
Value Added Monthly Index (VAMI)
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How to Apply Technical Indicators to Mutual Funds
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How to Analyze Mid-Cap Stocks
What Is Platykurtic? Definition, Examples and Other Distributions
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DUAL Commodity Channel Index (DCCI)
Can the Correlation Coefficient Predict Stock Market Returns?
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Top Technical Indicators for Rookie Traders
Understanding Trend Analysis and Trend Trading Strategies
The Pioneers of Technical Analysis
Anticipate Trends to Find Profits
Technical Analysis That Indicates Market Psychology
What Is a Bar Graph?
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Commodity Investing: Top Technical Indicators
A Stock Sell-off Vocabulary Guide
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Hockey Stick Chart
Image
Guide to Technical Analysis
What Is an Offset? Definition, Example, and How They're Used
Line Graph: Definition, Types, Parts, Uses, and Examples
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Price Channel
Horizontal Line: Definition, Uses, Example in Technical Analysis
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McGinley Dynamic Indicator
Strategies & Applications Behind The 50-Day EMA (INTC, AAPL)
Average Directional Index (ADX): Definition and Formula
Bollinger Band
Bollinger Bands?: What They Are, and What They Tell Investors
What Is a Paper Trade? Definition, Meaning, and How to Trade
Using Bullish Candlestick Patterns to Buy Stocks
Fibonacci and the Golden Ratio
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Notional Value vs. Market Value: What's the Difference?
Exponential Moving Average (EMAV)
How Is the Exponential Moving Average (EMA) Formula Calculated?
Arithmetic Mean: Definition, Limitations, and Alternatives
Average True Range
Average True Range (ATR) Formula, What It Means, and How to Use It
Bullish Engulfing Pattern
Bullish Engulfing Pattern: Definition, Example, and What It Means
Candlestick
Candlestick Chart Definition and Basics Explained
What is EMA? How to Use Exponential Moving Average With Formula
Fibonacci Retracement Levels
What Are Fibonacci Retracement Levels, and What Do They Tell You?
Head and Shoulders Pattern
What Is a Head and Shoulders Chart Pattern in Technical Analysis?
Ichimoku Cloud
What Is the Ichimoku Cloud Technical Analysis Indicator?
MACD
MACD Indicator Explained, with Formula, Examples, and Limitations
Moving Average
Moving Average (MA): Purpose, Uses, Formula, and Examples
On Balance Volume (OBV)
On-Balance Volume (OBV): Definition, Formula, and Uses as Indicator
Relative Strength Index (RSI)
Relative Strength Index (RSI) Indicator Explained With Formula
Simple Moving Average (SMA)
Simple Moving Average (SMA): What It Is and the Formula