Technical Analysis
Technical analysis- is essentially the making and interpreting of stock charts. Thus its practitioners are usually referred to as chartists. They study the movements of common stock prices and the volume of trading in past years to try to determine future changes of the stock prices. Most chartists believe that the market is 10% logical and 90% psychological. They also generally subscribe to the castle-in-the-air school and view the investment game as one of anticipating how the other players will behave. Charts tell of what trends have happened in the past and under careful study these chartists hope to be able to determine what the other players are doing to shed some light on what the crowd is likely to do in the future.
- Castle in the Air Theory
- This theory analyzes how the crowd of investors will act in the future and the tendency in periods of optimism to build their hopes into castles in the air. Investors try to beat the gun by estimating what investment situations are most suceptible to public castle building and then buy them before the crowd.
Principles
- All information about earnings, dividends, and future performance of a company is automatically reflected in the company's past market prices. A chart showing these prices and the volume of trading already comprises all the fundamental information, good or bad, that the security analyst can hope to know
- Prices tend to move in trends: A stock that is rising tends to keep rising, whereas a stock at rest tends to remain at rest
"When I come into this office I leave the rest of the world outside to concentrate entirely on my charts. This room is exactly the same in a blizzard as on a moonlit June evening. In here I can't possibly do myself and my clients the disservice of saying 'buy' simply because the sun is out or 'sell' because it is raining."- the original chartists, John Magee
Random Walk | Speculative Bubbles | Fundamental Analysis | Technical Analysis | Efficient-Market Hypothesis | Non-Random Walk Theory | Market Efficiency vs. Behavioral Finance
