What is a technical analysis?

There are two common types of approaches to investigate investment in stocks: Basic analysis and Technical analysis . Basic analysis focuses on society. It looks at things such as balance sheets, accounting value ratios and price earnings and used to determine whether the shares considered is a good long -term investment. Technical analysis focuses almost exclusively on the price of shares and its formulas. The more profitable the company, the higher the stock price. There may be a delay between increased profits and increased stock price, but investors using basic analysis are certain that the other follows. If there is a delay, this is a shopping opportunity. Technical analysis is based on completely different assumptions. With technical analysis, the initial assumption is that the market is made up of a large group of people. It is assumed that this large group of people will behave in predictable samples.

The challenge for technical analysts is to find these formulas in stock price movements. The patterns tend to be covered in price trends, as external events tend to influence the movement of the stock price. These external events tend to add "noise" to patterns that mask or change the prices of warehouse prices. Sometimes external events completely interrupt the pattern and trigger a new pattern. An example is an event such as an attack of 11 September in New York, which had a huge impact on stock prices.

Technical analysis uses many tools or techniques. Elliot waves theory, moving averages, graph analysis, stochastic analysis, trends analysis and Bollinger tapes are only few ordinary. However, the goal is always the same: to predict the movement of stock prices. If the forecast is correct, then the profit is achieved.

Basic analysis is considered to be more conservative than the approach of technical analysis. In most cases, if the company earns money, it will make money in the future. There is much smallerMatch as to the reliability of the base for technical analysis. The attraction of technical analysis is hope or perception that one can make a profit faster than with access to purchase and possession, which is a typical end result of the approach of basic analysis.