In my about me page I mention many things that I like, like singing, acting, buying and selling art, traveling, and especially my dogs and cats. And I also mention Technical analysis. Technical analysis of equity chart indicators, to be specific.
So what is Technical Analysis ? How does it differ from fundamental analysis, as far as investing and trading in equities is concerned ?
One simple comparison that I’ve seen recently is in order for someone understand the difference, is that in a shopping mall, everyone that went into a store to look at the product, talk with the management, get to know who owns and operates the store, ask questions and get answers about the cash flow, and profit and loss of the store, is doing fundamental analysis. But the person who doesn’t go into the store, but only sits on a mall bench and watches the flow of people into, and out of the store is doing technical analysis. Basically, I don’t really care about what the store is selling. I only care about the statistical indicators and algortyhms that suggest which direction that stores equity share price is headed.
Another way to describe technical analysis is Every Picture Tells a Story. In the case of equities, and commodities, and pretty much anything of value that can be tracked digitally, on charts and graphs, that investments’ chart is its’ picture. But how that picture is painted in order to help you make a buy and sell decision can differ based on the technical tools that the technical analyst uses to paint the chart, and how the technical analyst interprets what that picture is telling them. Tools I like are Bollinger bands, Stochastics, MACD (Moving Average Convergence Divergence), Volume indicators, and my favorite, Fibonacci ladders, that are useful in identifying levels of support and resistance in an equities chart.
I’ll be highlighting how I use Technical Chart Analysis, and technical indicators, to understand stock charts in posts to come.
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