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Thursday, October 15, 2009

What is Technical Analysis

Technical analysis is the study of stock with chart as primary tool to decide that stock is expensive or not. Technical analysis come from DOW Theory, created by Charles dow at 1990. It include such principles as the trending nature of prices, prices discounting all known confirmation, divergence and information. And its called Modern analysis!!

The result represents human habit. Technical analysis is the habit as one person agrees to buy and another agrees to sell. The price at which an investor is willing to buy or sell depends primarily on his expectations. If he expects the price to rise, he will buy it; if the investor expects the price to fall, he will sell it. These simple statements are the cause of a major challenge in prices, because they refer to human expectations. As we all know firsthand, humans are not easily quantifiable nor predictable. This fact alone will keep any mechanical trading system from working consistently.

Because humans are involved, I am sure that much of the world's investment decisions are based on irrelevant criteria. Our relationships with our family, our neighbors, our employer, the traffic, our income, and our previous success and failures, all influence our confidence, expectations, and decisions. The prices are determined by money managers and home managers, students and strikers, doctors and dog catchers, lawyers and landscapers, and the wealthy and the wanting. This breadth of market participants guarantees an element of unpredictability and excitement.