Technical Analysis
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Welcome to the mysmp.com technical analysis trading center. Put simply, technical analysis is the art of being able to analyze previous market trends to create future price projections. As opposed to fundamental analysis which bases its projections on financial statements and corporate guidance, true technicians will ignore this information and use stock price and volume as their guide.
Technical analysis is based on the theory that the market is a discounting mechanism which prices in the fundamentals before they are known to the general public. Do you ever wonder why a stock will move higher into an earnings release, only to report great earnings and then fall on profit taking? There is a saying which describes this phenomena, “buy on the rumor, sell on the news”. The best time to buy is when nobody is interested and the best time to sell is when everyone wants a piece of the action. The challenge with stock trading is to be able to spot this activity and trade with the big money, not against it.
Above, you will find our technical analysis trading articles broken out into three categories; candlestick charts, chart patterns, and technical indicators. It is important to understand that the foundation of technical analysis is based on the study of price, volume, and their relationship to each other. Almost every indicator, pattern, or formation we discuss is a derivation of these two concepts.
Candlestick charts have quickly gained popularity over the last 10 years due to their ability to illustrate the emotional makeup of the investors in the market place. They are created with four data points; the open, high, low, and close of the trading period. Candlestick charts are now available on any reputable technical analysis charts package and being able to interpret the different formations that can occur can drastically help you understand where the market is heading. Here, we discuss many of the popular reversal and continuation patterns, providing a very detailed explanation of each. You can get started with the Candlestick Charts - Reversals article to get an overview of candlestick charts and some of the basic reversal patterns.
Over the past 100 years, a few key chart patterns have become the foundation of stock market technical analysis. In our chart patterns section, we discuss many of these formations, describe the setup and even provide price targets.
Finally, we have written a plethora of articles on technical analysis indicators. As we suggested above, these indicators are derived from the price or volume activity in a stock and can help you confirm or deny your analysis. Indicators can be used as part of a trading system but should never be used in a silo. They are often useful in identifying divergences and extremes. A seasoned trader will learn that there is no magic bullet; rather, money management and sticking to your rules will determine your level of success.
Many traders who attempt to learn the technical analysis of stock trends will inevitably fail and render this analysis technique worthless, casting it off as a form of gambling. The truth of the matter is that, like anything worth having, technical analysis trading is a learned skill which requires a tremendous amount of patience, emotional strength, research, and strict adherence to your rules. Trading stocks is one of the hardest professions that anyone can undertake, but it can reward you handsomely once you find your niche as a trader.
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