Technical Analysis
Technical Analysis is a technique for forecasting the direction of stock prices based on past market data. Itas simplest form takes only two variables into account: 1) price, and 2) volume. At this level, Technical Analysis is an overly simplified statistical analysis of market trends, and while many people have claimed positive results, it does not stand up to the scrutiny of academic mathematicians.
Over the past years, technical analysts have argued that a company's specific data affects the price and value of their stocks, therefore making fundamental analysis unnecessary. The method of fundamental analysis utilizes a comprehensive company profile to predict future trends.
Eliminating guesswork from the investment process is the goal of technical analysis. Using different data, fundamental analysis creates the same result with a different method. Technical analysis, however, gives a pure, quantitative gauge of future trends to help automate decision making.
"Head and Shoulders," a graph pattern that shows two equal peaks with a high center peak, is one of the typical patterns a professional technical analyst will utilize in making trading decisions. Some criticize that these patterns are a result of the humanas predisposition to form patterns in the geographically random environment, and are not mathematically valid.
Though technical analysts aim to objectively measure market trends, subjective bias may cause quantitative data to be overlooked. Attributing more or less weight to some statistical patterns or favoring certain charting methods are some factors that can limit quantitative prediction of the market.
The promise of artificial intelligence and machine learning will impact the future of both technical analysis and fundamental analysis. This technology will automate the decision-making process of investing without the limitation of how much data can be physically processed by an individual.
Unlike an analyst, a computer can pick up miniscule details that on the surface seem unrelated to the trend being evaluated. Additionally, is not predisposed to identify false patterns. Computers can identify trends of any size, though analysts tend to look for just the larger trends.
While it is plausible that many existing analytical paradigms will become obsolete as our tools improve, it is unknown whether machines will replace technical analysis or merely reveal the shortcomings of our prior techniques and help us to improve them.
Over the past years, technical analysts have argued that a company's specific data affects the price and value of their stocks, therefore making fundamental analysis unnecessary. The method of fundamental analysis utilizes a comprehensive company profile to predict future trends.
Eliminating guesswork from the investment process is the goal of technical analysis. Using different data, fundamental analysis creates the same result with a different method. Technical analysis, however, gives a pure, quantitative gauge of future trends to help automate decision making.
"Head and Shoulders," a graph pattern that shows two equal peaks with a high center peak, is one of the typical patterns a professional technical analyst will utilize in making trading decisions. Some criticize that these patterns are a result of the humanas predisposition to form patterns in the geographically random environment, and are not mathematically valid.
Though technical analysts aim to objectively measure market trends, subjective bias may cause quantitative data to be overlooked. Attributing more or less weight to some statistical patterns or favoring certain charting methods are some factors that can limit quantitative prediction of the market.
The promise of artificial intelligence and machine learning will impact the future of both technical analysis and fundamental analysis. This technology will automate the decision-making process of investing without the limitation of how much data can be physically processed by an individual.
Unlike an analyst, a computer can pick up miniscule details that on the surface seem unrelated to the trend being evaluated. Additionally, is not predisposed to identify false patterns. Computers can identify trends of any size, though analysts tend to look for just the larger trends.
While it is plausible that many existing analytical paradigms will become obsolete as our tools improve, it is unknown whether machines will replace technical analysis or merely reveal the shortcomings of our prior techniques and help us to improve them.
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TheScienceOfTrading.com provides 90 free minutes of videos on option trading systems and provides a complete and detailed learning to trade options for beginners to experts.
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