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Stock Market Technical Analysis Guide from AiStockCharts.com:


What is technical analysis?

Fundamental and technical analysis are the 2 basic techniques used to analyze securities in the stock market. Technical analysis is a mathematical approach to predict stock price movements based on historical price and volume data. Usually stock charts are combined with the analytical data to interpret technical indicators in a graphical format.

Technical analysis does not consider company fundamentals such as earnings, PE (Price to Earnings Ratio), EBITDA, cash, debt, dividends, insider transactions, take-overs, bankruptcys, etc.

Many professional securities traders recommend that aspiring traders use both fundamental and technical analysis.


Interpreting stock charts

There are many types of stock charts. One of the earliest price chart used was the bar chart. Although the bar chart is still widely used, the candlestick chart has gained mass appeal. The images below depict both chart types so you can compare them and spot the differences. Notice that the doji candlestick looks the same on the bar chart.

Another major component of stock charts is the volume data. This data is usually shown in bar graph format below the price chart.


       



What are technical indicators?

Technical indicators are mathematical parameters that are constructed by intelligent design with the intent to be used as tools to predict stock prices. The indicators are constructed using stock price and volume data. View or create technical indicators at our example technical indicators page. One signal market technicians look for is a divergence between certain indicators and the price action of a stock. A positive divergence (classic buy signal) exists when the price action of a stock is going down while the indicator is simultaneously becoming more bullish. A negative divergence is the opposite of a positive divergence.

There are hundreds of well known technical indicators. Well known technical indicators such as RSI (Relative Strength Index), Stochastics, Moving Average Cross-overs, MACD were all contructed by humans. AiStockCharts.com goes far beyond relying on humans to construct new intelligent technical indicators. Every day the AI (Artifical Intelligence) programs run at AiStockCharts.com to find new and historically profitable technical indicators. Some traders may be surprised to find some well known technical indicators have worked well while others have not.

The figure below displays the relationship between stock price and volume data, basic chart analysis, technical indicators, chart patterns and technical analysis systems.









 

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HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING SYSTEM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. THE RISK OF LOSS IN TRADING STOCKS CAN BE SUBSTANTIAL.

Stock trading is speculative and a substantial risk of loss exists. Past performance is not necessarily indicative of future results.

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