Technical analysis techniques represent the methods investors use when looking for profitable investments. They are typically the opposite of fundamental techniques, which look at the company behind the stock. To review individual stocks, technical analysis techniques use historical trends, charts, and price movements. Each of these terms represent a basic technique that investors can use in tandem in order to discover the most profitable stock, particularly in terms of price movements. This analysis process often requires a deep look into the various pieces of information surrounding the stock.
Historical trends are perhaps one of the most important technical analysis techniques. Investors tend to believe that history will repeat itself in terms of a stock’s movement in the overall market. These investors look for bearish or bullish sentiments from other investors, stock market analysts, and other surveys from those in the investing market. A review of the current trends and analysis by other stock analysts compared against previous trends may predict if a new price movement is about to occur. Investors can use this information for both traditional and contrarian stock trading.
Charts represent other important technical analysis techniques when investing in stock. Price movements typically have clear representation on stock charts. Investors look for either one or three of the lowest or highest points on a stock price chart. These points can represent either a price increase or decrease in the stock in the near future. Though not a foolproof method, the use of these price charts is integral to understanding current price movements.
The reason investors look for a single low point on a stock price chart is to find the stock’s floor price. This means the stock should not go below this point on average, barring any major changes in the stock market. The same is true for the high price point, where investors should not expect the price to go above. Finding multiple low or high price points indicates the stock's movement with investors. Investors can use chart information with bearish or bullish reports to determine whether the stock price will continue its price decrease or increase.
Price is by far the most important part of technical analysis techniques. Investors do not typically look at the company or its products so much as the stock's ability to provide positive financial returns. Using stop limits is often a common process in technical trading. This allows investors to cut losses short with unexpected price decreases.