Technical Analysis (or TA) refers to the analysis of chart trends and
patterns from the past to predict the future movements of a stock (or
a market) and identify potential trading opportunities. By using TA, a
trader can distinguish trends, patterns and other trading signals and
using this information to make more informed trading decisions. By
using past price data and reading the chart, a trader can make higher
probability trades, therefore increasing the likelihood of making
money trading over an extended period.

Most people start off investing under the premise of "fundamental
analysis", that a company (or market) has an "intrinsic value".
However with a little experience in the markets soon it is discovered
that this intrinsic value is very difficult to determine. Professional
analysts often disagree over this intrinsic value, it is highly
subjective. On top of this, companies' growth, profit and other
variables are constantly changing, making it next to impossible to
find this true intrinsic value.

Technical Analysis on the other hand takes a step back from intrinsic
value and emotional attachment to companies. Instead of trying to
place a value on a company, technical analysts simply analyse what the
market thinks about that company. The market is essentially on large
mass of opinions. The chart shows what that mass psychology thinks of
a stock, where people are buying and where they are selling. A prudent
trader can read this mass mentality and trade accordingly. By reading
the charts, and identifies trends, technical analysts can make more
informed and predictable trades.

Technical Analysis is a cross between an art and a science. In its
purest form, Technical Analysis considers only the actual price and
volume data of a company, market, or instrument. Technicians generally
search for distinctive and predictable price patterns, such as head
and shoulders, double tops and bottoms, flags and triangles. Chartists
also look for lines of support, resistance, channels and trend lines.
Once these patterns have been identified, they can be effectively
traded.

More advanced chartists will take advantage of indicators, such as
moving averages, relative strength indicators, Bollinger bands and
MACD (moving average crossover divergence). These indicators will help
to solidify what the raw price data and give a trader a more rounded
view of the stock price movements. Indicators such as a simple moving
average give a broad indication of the trend of a stock; they are very
helpful at identifying trends quickly. Taking advantage of some of the
indicators that most charting software provides is a wise choice.

Technical Analysis is widely used amongst trader and financial
professionals, and is often used by active day traders, market makers
and pit traders. It is a highly effective method of trading and
investing in the markets and takes the guess work out of trading.
Traders and investors simply need to analysis the stock's prevailing
trends and trade with them.

Anyone with an interest in the market should have at least a basic
understanding of Technical Analysis. TA would benefit long term
investors' right through to professional day traders. There is a
massive amount of potential to improve one's trading and investing
performance, accuracy and most importantly, profitability.

About The Author
The Everyday Trader offers online trading education courses. Our
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http://www.theeverydaytrader.com
By: TheEverydayTrader.com
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