Many investors analyze stocks based on their fundamentals—such as their revenue, valuation, or industry trends—but fundamental factors aren’t always reflected in the market price. Technical analysis seeks to predict price movements by examining historical data, mainly price and volume.
It helps traders and investors navigate the gap between intrinsic value and market price by leveraging techniques like statistical analysis and behavioral economics. Technical analysis helps guide traders to what is most likely to happen given past information. Most investors use both technical and fundamental analysis to make decisions.
KEY TAKEAWAYS
- Technical analysis, or using charts to identify trading signals and price patterns, may seem overwhelming or esoteric at first.
- Beginners should first understand why technical analysis works as a window into market psychology to identify opportunities to profit.
- Focus on a particular trading approach and develop a disciplined strategy that you can follow without letting emotions or second-guessing get in the way.
- Find a broker that can help you execute your plan affordably while also providing a trading platform with the right suite of tools you’ll need.