Chapter 7: Technical Analysis – Common Charts and Terms
Not long ago, Technical Analysis was considered the opposite of Fundamental Analysis. Rather than looking at a company’s products, its competitors and how much profit it makes, Technical Analysis looks at 2 things only: the prices for which a stock has traded, and the volume of shares traded at those prices. From these 2 data points, technical analysts locate patterns in stock price behavior, and surprisingly, more and more investors are seeing Technical Analysis as a complement to, not the opposite of, Fundamental Analysis.
So, the key to Technical Analysis is the history of prices paid for a stock and the volume of shares traded. We could create a history of the price paid for a stock by looking in the Wall Street Journal everyday and noting the closing price from yesterday. We could write down this price and then create a table to see the history of prices paid, like this:
Stock Prices of Google (GOOG)
However, this method of tracking prices does not easily reveal trends and patterns. Thanks to modern computer technology, Technical Analysis has become an acceptable research tool and not just a strange science. If we chart this data from our table below, where price is vertical and time horizontal, we will literally create a picture of those numbers:
From this chart, we can easily see that Google has risen steadily over this time period. Now, which would you rather look at: the table or this chart? Of course, the chart!!!