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What Is a Stock Technical Analysis?

Technical analysis involves using tools like price charts to track stock trading patterns.
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  • Written By: Luke Arthur
  • Edited By: Heather Bailey
  • Last Modified Date: 08 July 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
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Stock technical analysis is a method of trying to predict what the price of a stock will do without paying any attention to the fundamentals of a company. This approach is the opposite of fundamental analysis. Stock technical analysis focuses on price charts, utilizes technology, ignores other popular stock valuation methods, and is surrounded by controversy.

While performing stock technical analysis, investors are going to exclusively use price charts. Investors who use this method are going to most likely have several price charts pulled up of different stocks. Many of these investors will utilize multiple computer screens to have more access to the charts. These investors are trying to identify profitable patterns in the price movement of a stock. When a profitable opportunity is identified in the price charts, the trader is going to open a trade.

When utilizing stock technical analysis, traders are going to take advantage of technological advancements. There are many different indicators and programs that can be used in conjunction with regular charting software. These programs are designed to automate the process of stock technical analysis. Instead of sitting in front of a computer screen, traders can automate some of this process.

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The other popular method of stock valuation is known as fundamental analysis. Fundamental analysis looks at the financial statements of companies to determine if they are overvalued or undervalued. Technical analysis does not pay any attention to this method of valuing stocks. Individuals who believe in technical analysis think that everything they need to know is present in the current price of a stock. This means that technical analysts are rarely going to look at financial statements or listen to fundamental stock analysts.

Even though technical analysis is commonly used by many traders across the world, it is still surrounded by controversy. Technical analysis was invented much later than traditional fundamental analysis. This means that many of the traditional stock traders do not believe in the merits of this method of stock valuation. Many fundamentalists believe technical analysis is nothing more than luck if it works.

In reality, there is no right or wrong way to evaluate stocks. Many traders have been successful using technical analysis as well as fundamental analysis. Using a combination of both methods of stock evaluation will typically be the best course of action for investors. This will ensure that the trader is looking at every aspect of a trade before it is taken.

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