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What Is Involved in the Technical Analysis of Silver?

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  • Written By: Jim B.
  • Edited By: M. C. Hughes
  • Last Modified Date: 29 November 2016
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A technical analysis of silver is a process that involves investors or other financial professionals in studying the past price performance of both silver as a commodity and of other investments related to silver. Such an analysis is unconcerned with any external or real-world pressures on the silver market that may affect prices. The theory behind the technical analysis of silver is that its prices in the past form patterns that will be repeated in the future, thus enabling an accurate prediction of its price movement. Performing such an analysis of silver requires making detailed charts of silver price movements and computing moving averages of its price over a period of time.

There are two types of analysis that can be performed on any type of security. Fundamental analysis relies on a close look at the characteristics of the security, known as fundamentals, that can affect how the security is priced by investors. By contrast, technical analysis has no use for fundamentals. Instead, it simply tracks price performance and studies how such performance provides reliable information on future prices. A technical analysis of silver, a precious metal often in high demand with investors, is especially effective in predicting silver prices in the immediate future.

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One of the main aspects of a technical analysis of silver is the making of charts to track price movements. By making these charts, investors can not only watch what direction that the price of silver travels, but they can also find out if a specific movement in price is the start of a trend or simply a brief aberration. Expert analysts can make extremely detailed charts that also show the volume of trading on silver, a good indicator of momentum.

Once these charts are made, the technical analysis of silver requires users to observe patterns. Technical investors believe that these patterns will eventually repeat themselves over and over as time passes. Certain chart patterns are common and can be spotted quickly by trained eyes. When the start of one of these patterns occurs on a silver price chart, investors can anticipate where the price will go next.

Moving averages are also excellent tools for the technical analysis of silver. They are created by taking the average price of silver over a specific period of time. As each day passes, new price data replaces the data that is no longer useful. By charting the moving average of silver, investors should be able to see trends developing in either direction. Thus, they can buy or sell silver according to where those trends are headed.

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