Technical Analysis, Technical Traders, Automated Trading

By Staff Editor | September 19, 2017

Basics of Technical Analysis
Technical analysis is the evaluation of patterns in the historical price of a stock, currency pair,
commodity or other financial instrument in order to determine likely future moves.
This type of approach is distinguished from fundamental analysis, that focuses on studying the forces currently at play and likely to influence the value of the asset.

A fundamental analyst would examine the balance of payments and profitability of a corporation,
along with industry factors that appear likely to impact upon the sector in which the corporation is active.
In the case of a currency, a fundamental analyst would consider a far wider range of considerations impacting upon the viability of the state’s government and economic systems.

A technical analyst disregards all of these factors and studies the asset price alone.
A historical chart is generally the easiest format in which to make sense of price data.

While there are a number of elaborate theories about Fibonacci numbers, stochastic indicators,
and other mathematically complex approaches, some of the simpler technical analysis tools are much more intuitive and seem to reflect the basic elements of group psychology that are active in a trading environment made up of a large number of individuals.

For instance, technical traders consider certain price points to be support/resistance levels.
A price that has in the past been difficult to exceed, or to fall below, can function as a moment of reflection for the masses of traders.

So if a stock has risen repeatedly but failed to exceed $47, it is likely that when it touches that price, it will pause. Should it break through even a little, it will continue on rising until it encounters another resistance point. Support levels serve the same function for a falling price.

With the advent of automated trading, it became possible for investors to give an automatically triggered order that takes effect when a price exceeds a given level. This allows sellers to acquire an asset the moment it exceeds a resistance level, when it is strongly expected to continue its upward trajectory.
This is known as trading breakouts.

Comments are closed.