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Technical analysis

What is Technical Analysis ? What is it used for ? Some use it to gauge sentiment, others use it in an attempt to determine what prices will be tomorrow, next week, or next year. Wouldn't it be nice if there were a method by which to do these things ? Does one exist ?

The answer is Yes !

History

Technical Analysis, or "TA", is the study of stocks based solely upon past price history, or, as the graph of this history is commonly referred to... charts.

Technical Analysts believe that the chart foretells future events--whether it be an amazing new product being released, or a massive layoff of employees--they believe that the chart "telegraphs" all of this information in advance. This information is "sent" by looking at the buying and selling action, or, supply and demand measures (these two are inextricably intertwined), of the security, and by using technical analysis tools. The modern-day technical analysis tools are derived primarily from the Dow Theory, which was developed in the early 1900s by Charles Dow.

Market Pressures

Generally, the price of a security represents the general overall sentiment of all the market paricipants who have a position in the security. The last trade price is the price at which the last transaction took place. Where one person agreed to buy and another agreed to sell. The market price is largely determined based on future expectations. If a market participant determines that a security is undervalued and expects the price to go up to match his expectations, the participant will generally buy it, and take a position--however, when the same market participant determines that the stock is overvalued, and expects the price to drop, he will sell, exiting his position. These two actions: buying and selling, directly reflect the economic factors of supply and demand. When market participants expect the value of the stock to rise, demand is increased and the price goes up. When market participants expect the value of the stock to fall, there is an increase in supply and a corresponding drop in prices.

A lot of the world's market participants use technical analysis, as it is a valuable tool for increasing your odds of success. Here at Frontier, we focus primarily on the technical aspects of trading and investing.

For more information, we offer live daily seminars in our chatrooms ! Please see our seminar schedule !


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