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| '''Charting''' or '''technical analysis''' is the use of |
'''Charting''' or '''technical analysis''' is the use of numerical series generated by market activity, such as price and volume, to predict future trends in that market. The techniques can be applied to any market with a comprehensive price history. | ||
| Technical analysis does not try to analyze the financial data of a company such as cashflow, dividends and projection of future dividends. That type of analysis is called ]. | Technical analysis does not try to analyze the financial data of a company such as cashflow, dividends and projection of future dividends. That type of analysis is called ]. | ||
| Technical analysis |
Technical analysis implicitly assumes weak-form efficiency of the markets as understood in the ]. The efficient markets theories basically argue that existing prices reflect all available information and that future price movements will reflect new information as it emerges. The theories further assume that all participants in the stock market have equal and instantaneous access to all the information about stocks. Technical analysts or chartists believe that by analysing stock price histories they can discern sufficient information about the thinking of buyers and sellers to anticipate future events. That is, they assume that there is useful information to be gleaned, i.e. hidden within, price histories; that it is a way of analyzing the past actions of people in a particular market as reflected by their actual transactions. | ||
| ⚫ | The traditional chartists developed familiarity with chart patterns and gave some of them names e.g. "head and shoulders" or "flag" or "triangle". They believed that they could infer probabilities of price action from studying the patterns. More recent technical analysts use a wide variety of techniques but, at their best, their methods approximate more closely to a statistical analysis of price action. For example J.M.Hurst (see below) used sophisticated techniques (fourier analysis) to search for meaningful signals amongst the apparent random noise of stock price movements. | ||
| The point of view of most traders who use technical analysis is that it is a way of analyzing the past actions of people in a particular market as reflected by their actual transaction history. Until people agree on price but disagree on value, no transaction takes place. They believe that prior actions are useful as a guide to future actions. In particular that transaction data provides information about supply and demand at various price levels. | |||
| ⚫ | The traditional chartists developed familiarity with chart patterns and gave some of them names e.g. "head and shoulders" or "flag" or "triangle". They believed that they could infer probabilities of price action from studying the patterns. | ||
| More recent technical analysts use a wide variety of techniques but, at their best, their methods approximate more closely to a statistical analysis of price action. | |||
| While technical analysis is widely used (if only as one input among many) by both professional and amateur traders as a means of predicting future market moves, it is generally not used by economists in any academic sense. | While technical analysis is widely used (if only as one input among many) by both professional and amateur traders as a means of predicting future market moves, it is generally not used by economists in any academic sense. | ||
Revision as of 03:36, 2 October 2003
Charting or technical analysis is the use of numerical series generated by market activity, such as price and volume, to predict future trends in that market. The techniques can be applied to any market with a comprehensive price history.
Technical analysis does not try to analyze the financial data of a company such as cashflow, dividends and projection of future dividends. That type of analysis is called fundamental analysis.
Technical analysis implicitly assumes weak-form efficiency of the markets as understood in the efficient market hypothesis. The efficient markets theories basically argue that existing prices reflect all available information and that future price movements will reflect new information as it emerges. The theories further assume that all participants in the stock market have equal and instantaneous access to all the information about stocks. Technical analysts or chartists believe that by analysing stock price histories they can discern sufficient information about the thinking of buyers and sellers to anticipate future events. That is, they assume that there is useful information to be gleaned, i.e. hidden within, price histories; that it is a way of analyzing the past actions of people in a particular market as reflected by their actual transactions.
The traditional chartists developed familiarity with chart patterns and gave some of them names e.g. "head and shoulders" or "flag" or "triangle". They believed that they could infer probabilities of price action from studying the patterns. More recent technical analysts use a wide variety of techniques but, at their best, their methods approximate more closely to a statistical analysis of price action. For example J.M.Hurst (see below) used sophisticated techniques (fourier analysis) to search for meaningful signals amongst the apparent random noise of stock price movements.
While technical analysis is widely used (if only as one input among many) by both professional and amateur traders as a means of predicting future market moves, it is generally not used by economists in any academic sense.
See Also:
Finding related topics
- list of finance topics
- list of accounting topics
- list of management topics
- list of human resource management topics
- list of marketing topics
- list of economics topics
- list of information technology management topics
- list of production topics
- list of business law topics
- list of business ethics, political economy, and philosophy of business topics
- list of business theorists
- list of economists
- list of corporate leaders
- list of companies
Further reading
- Technical Analysis of Futures Markets, John J. Murphy, New York Institute of Finance, 1986, ISBN 0-13-898008-X
- The Profit Magic of Stock Transaction Timing, J.M. Hurst, Prentice-Hall, 1970.