1. Money

What is Technical Analysis?

Definition and Basics of Stock Trading

By

Definition: Technical analysis is a type of security analysis used for forecasting the future direction of prices, usually for stocks. The analysis includes research and study of historical price and volume.

Technical analysis is a market timing technique that is disputed by the efficient-market hypothesis (EMH) which states that all known information about investment securities, such as stocks, is already factored into the prices of those securities. Therefore no amount of analysis can give an investor an edge over other investors.

Technical traders often use charts to recognize recent price patterns and current market trends for the purpose of predicting future patterns and trends. In different words, there are particular patterns and trends that can provide the technical trader certain cues or signals, called indicators, about future market movements. For example, some patterns are given descriptive names, such as "head and shoulders" or "cup and handle." When these patters begin to take shape and are recognized, the technical trader may make investment decisions based upon the expected result of the pattern or trend.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.

  1. About.com
  2. Money
  3. Mutual Funds
  4. Where to Invest Now
  5. Technical Analysis - Stock Trading Definition

©2014 About.com. All rights reserved.