Introduction To Technical Analysis

This Introduction To Technical Analysis will server as a primer for the novice trader who is looking to embrace this fascinating but badly misunderstood field.  However, we strongly suggest that you get a good grasp of the strategy behind the concept of mass psychology before adopting technical analysis. Technical Analysis Is where one looks for patterns; in essence, one is attempting to predict the future though the examination and analysis of past price movements and patterns.  Market technicians do not waste time trying to measure a security’s intrinsic value; instead, the focus is examining charts and using specific tools to identify patterns that predict future price movements.  Technical analysis, when used properly, can help identify market tops and bottoms; it does not predict the price date of the event but can be used to determine topping or bottoming action.

In lay man’s terms

The fundamental analyst would go to fast food place and study how fast and how efficiently the place handled each order, and he would also analyse the number of people who came into that location on a given day before deciding on whether he should buy it or not.  A technician would only sit outside and study the people shopping there, he would not care what the cost of the product was or how many were sold, he would be looking for specific patterns and based on past analysis would use this data to determine whether he should buy or not.

You can turbo charge your result by technical analysis with contrarian investing and Mass psychology, something that is done very professionally at Tactical Investor  
Now let’s look at some of the most popular technical analysis tools.  We will examine them all, so please drop by here as we update this page. This is a work in progress. We are also going to provide a source for some of the best technical analysis tools and will list this all on one page.

Relative Strength Index

It was developed by Welles Wilder and described in detail in a book he published in 1978 called “new Concepts in technical trading. It is a momentum based oscillator that measures the magnitude of stocks upwards moves over a given period against the magnitude of losses over that same period. The standard value is usually 14, but one can set it anywhere from 0 to 100. The value is calculated by using the last 14 periods.


It stands for moving average convergence/Divergence and was created by Gerald Appel.  It is a trend indicator that follows the relationship between two moving averages; these values are usually preset at 26 and 12.  It is calculated by subtracting the 26 days moving an average of a given stock, index, etc. from its 12 days moving average.  It is used to determine buy and sell points in a given security.

Other popular tools are


Moving Averages

Advance-Decline line

The idea is to find several indicators that you feel comfortable working with.  The next step is to customise them as opposed to using the standard settings. There are services out there; that can do this for a small charge.  After that, you analyse chart, after chart, until you have a thorough understand of how these tools work.  Practice makes perfect.


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