Technical Analysis

Technical analysis is the study of the price movement and patterns of a security. By scrutinizing a security's past price action, primarily through charts and indicators, traders can forecast future price direction.

A couple of stock traders sitting at home with stock charts showing technical indicators on laptop screens, using notebook to learn about technical analysis.
Best Ways To Learn Technical Analysis

Frequently Asked Questions

  • What is technical analysis?

    Technical analysis is an investing method that is used to evaluate investments and identify trading opportunities in price trends and patterns by using charts. By tracking price and trading volume, investors can recognize patterns that help them guide their trading decisions.

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  • What is a line graph?

    A line graph connects various data points to show specific patterns over a defined time horizon of interest for an investor, and can also be known as a line plot or line chart. For investors, the data is used to create a visual representation of a company’s historical stock price moves.

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  • What is an average return?

    An average return is a measure or indicator that helps investors and analysts gauge what the returns for a particular stock or security has been over a set period of time. In sum, it is the average return calculated over a time period of interest to the investor.

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  • How do you build a trading indicator?

    Trading indicators are tools that an investor can use to help gauge future performance of a stock or security. Two of the most common parts of an indicator are to build a unique indicator to uses patterns and common chart patterns to recognize trends, and to use mathematical functions to predict future support and resistance levels of stock prices.

    Learn More: How to build a trading indicator
  • What is relative strength?

    Relative strength involves selecting investments that have been outperforming the market and is used by technical analysts and value investors to inform their investing decisions. Relative strength investors generally believe that the trend of outperformance will continue, which is why they are sometimes referred to as momentum investors.

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  • What is a hockey stick chart?

    In trading circles, a hockey stock chart is a price line chart that looks like a hockey stock, which depicts a sharp rise in prices after a short period of stability. As one can guess, this is illustrated by a chart that looks like a hockey stick with a short, curved blade, attached to a long stick that rises at an angle.

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Key Terms

  • Triple Top

    In investing, a triple top pattern in technical analysis is formed by three peaks moving into the same area, with declines in between that pattern. Generally speaking, a triple top formation is considered complete, indicating a further price slide, once the price moves below pattern support.

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  • Divergence vs. Convergence

    In technical analysis, divergence occurs when the price of an asset and an indicator move away from each other; convergence happens when the price of an asset and an indicator move toward each other.

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  • Technical Indicator

    Technical indicators are mathematical calculations based on the price, volume, or open interest of a security that investors use to perform technical analysis on the securities they follow.

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  • Price Channel

    A price channel is a trading terms used in technical analysis to show the movement of a stock price moving within a band of two parallel lines, which can be visually depicted with a horizontal, ascending, or descending trend.

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  • Commodity Investing

    Commodity investing is a speculative practice by investors and traders to invest in commodities such as orange juice, coffee, or crude oil to buy and sell the securities for profit. Traders often will use technical or fundamental analysis to make those decisions.

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  • Ulcer Index

    The Ulcer Index is a specialized technical indicator that measures risk by measuring both the depth and duration of price declines. The indicator is usually calculated over a 14-day period, with the Ulcer Index showing the percentage downside rise that a trader can expect from the high mark.

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  • DUAL Commodity Channel Index

    The dual commodity channel index, or DCCI, is a variation on the popular commodity channel index created in 1980, and is a tool used in technical analysis to identify when an asset or market is overbought or oversold.

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  • Horizontal Line

    In technical analysis, a horizontal line represents a price chart to note the security’s support level or resistance level. The line runs parallel to the x-axis to show the security’s price value over time.

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