It's All in the ChartsTechnical analysis or the study of stock market charts is merely the study of stock prices over previous days, months and years in the belief that this can help predict future prices. In technical terms "price is the intersection of supply and demand".
Technical analysis assumes that sentiment is at least as important when it comes to determining the price of a stock as fundamental factors such as earnings and profit margins.
In technical analysis in online stock trading there is the belief that all ideas about value are contained in the price.
According to technical analysis, a stock's price is not random. There are periods when supply and demand for the stock is in balance followed by periods of price movement (trends), caused by an imbalance between supply and demand.
If there is too much demand for a stock and not enough supply then the trend is bullish. If there is too much supply and not enough demand then the trend is bearish.
Technical analysts believe also that stock charts show where a price is going before there is any fundamental news to give any indication. The reason being that someone always knows and their actions cause the stock price to move up or down.
There is also the phenomenon of people lowering their expectations. As a stock price falls people lower their expectations and each time their is a small rally they are willing to sell their shares as they believe that the stock will fall further and so it is better to sell on any rally. This leads to a self-fulfilling downward trend with each rally being sold into. Eventually all those that are going to sell have sold and so there is nobody left to sell anything, the trend therefore starts to flatten out. In technical analysis terms the stock price is putting in a bottom.
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