Technical Analysis
Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. Unlike fundamental analysis, which attempts to evaluate a security's value based on business results such as sales and earnings, technical analysis focuses on the study of price and volume.
Definition: Technical analysis is a trading discipline that evaluates investments and identifies trading opportunities by analyzing statistical trends gathered from trading activity, such as price movements and trading volume. Unlike fundamental analysis, which attempts to assess the value of a security based on business results like sales and earnings, technical analysis focuses on the study of price and volume.
Origin: The origins of technical analysis can be traced back to the late 19th century when Charles Dow introduced the Dow Theory, which is one of the foundations of technical analysis. Over time, technical analysis evolved, especially with the advancements in computer technology in the 1970s, making data processing and chart analysis more accessible.
Categories and Characteristics: Technical analysis is mainly divided into two categories: chart analysis and indicator analysis. Chart analysis includes trend lines, support and resistance levels, and pattern analysis; indicator analysis includes moving averages, Relative Strength Index (RSI), and Stochastic indicators. Chart analysis is characterized by its intuitive and easy-to-understand nature, while indicator analysis is more complex and requires a certain level of mathematical and statistical knowledge.
Specific Cases: 1. An investor observes a stock's price chart and identifies a 'head and shoulders' pattern, which typically indicates a price decline. The investor decides to sell the stock, successfully avoiding the subsequent price drop. 2. Another investor uses the Relative Strength Index (RSI) to determine whether a stock is overbought or oversold. When the RSI value exceeds 70, the investor considers the stock overbought and decides to sell; when the RSI value falls below 30, the investor considers the stock oversold and decides to buy. Through this method, the investor achieves good returns in multiple trades.
Common Questions: 1. Is technical analysis always accurate? Technical analysis is not always accurate; it relies on historical data and statistical patterns, and market randomness and unexpected events can cause the analysis to fail. 2. Which is better, technical analysis or fundamental analysis? Both have their pros and cons. Technical analysis is suitable for short-term trading, while fundamental analysis is better for long-term investing. Investors can choose the appropriate method based on their investment style and goals.
