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!!!