What is Technical Analysis?

Technical analysis , in English , is an investment analysis method that conducts investment analysis, trend judgment , and trading point identification by analyzing trading data .

Technical analysis and fundamental analysis have become the two most important financial investment analysis methods nowadays. Technical analysis focuses more on human nature, that is, the thoughts of other investors, while fundamental analysis focuses more on the company itself, such as the company’s profitability or cash flow. You can usually find technical analysis data and fundamental analysis data from the analysis data provided by securities dealers.

  • If you focus on short-term speculation through technical analysis, then the money you earn is actually the money lost by other investors. This is what people often call ” zero -sum game ” .
  • If you invest in growth companies through fundamental analysis, you may be more concerned about the company’s future growth, then the money you earn mainly comes from the growth of the company’s profitability .

Technical analysis focuses on the price and volume of transactions. It collects various data, performs statistical analysis, and produces charts to display the analysis results in the form of digital reports and intuitive graphics. Analysts or investors obtain market trends from data tables or graphic reports, estimate future trends, and determine the most appropriate investment opportunities.

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Technical analysis considers investors’ sensitivity to numbers and their ability to use statistics. Unlike fundamental analysis, technical analysis does not focus on factors such as the company’s operating model and the overall economic environment, but focuses more on numbers and trends.

What does technical analysis include?

The core idea of ​​technical analysis is that market prices will reflect all available information that may affect market trends. Therefore, technical analysts will focus most of their energy on the stock price trends of listed companies.

Technical analysis typically looks at a number of indicators related to stock prices, including:

Price Trends : Price trends refer to the direction and trend of stock prices over a certain period of time. Price trends can be divided into rising trends, falling trends, and consolidation trends. Some investors will predict future stock price trends by observing the trend and change range of stock prices.

Volume : Volume refers to the number of stock transactions in a given period of time. It is an important indicator reflecting the situation of market participants and is recognized as one of the most important indicators in technical analysis.

Momentum Indicators : Momentum indicators are commonly used in technical analysis. They are usually used to measure the speed and magnitude of stock price changes. Momentum indicators are usually presented as a straight line below the price chart. Investors can judge the price trend and the momentum of stock prices based on the changes in momentum indicators.

Oscillators : Oscillators create high and low bands between the two extreme values ​​of the stock price, and then set trend indicators when the price enters these ranges. Investors can use these tools to detect short-term overbought or oversold conditions.

Moving Averages : Moving averages are also one of the most basic indicators of concern in technical analysis. They smooth price data within a given range by continuously updating the average price line. The average calculation interval is set according to the needs of investors or analysts, which can be 20 minutes, 10 days or a week, etc.

Support and Resistance Levels: Support and resistance levels represent the point in time when the current stock supply and demand relationship is met in the market, which is crucial for analysts to conduct stock price analysis.

What are the main types of technical analysis of a company?

There are two main categories of technical analysis: chart patterns and technical indicators .

Chart Patterns

A chart pattern is a series of trend lines or curves that are used to analyze price movements in a graphical form. Technical analysts look for price reversal or continuation signals from fluctuations in the chart.

Chart patterns are somewhat subjective. Technical analysts use various data charts and specific models to judge the information prompts on the charts, and then determine various indicator areas such as support areas and resistance areas based on certain subjective psychological factors.

The chart patterns for technical analysis are usually the following:

Candlestick chart : The candlestick chart is one of the most widely used chart patterns in technical analysis. It presents the fluctuation of stock prices in an intuitive way, including information such as opening price, closing price, highest price and lowest price.

Line chart : A line chart mainly reflects the trend changes of stock prices and is presented in the form of lines connecting all price points.

Bar chart : A bar chart is usually used to present stock trading volume, with vertical bars representing the trading volume of each trading day.

Bollinger Band chart : The Bollinger Band chart is a chart pattern based on the Bollinger Band indicator, which mainly reflects the fluctuation and trend of stock prices, including information such as the middle track, upper track and lower track.

MACD chart (Moving Average Convergence Divergence chart): MACD chart is a chart pattern based on the MACD indicator, which mainly reflects the long-term trend and short-term fluctuation of stock prices, including information such as DIF, DEA and MACD.

Technical Indicators

Technical indicators are mathematical formulas and algorithms used to analyze stock price movements and market trends. These indicators usually calculate changes in data such as price and volume to help analysts better predict future price movements and trends. Technical indicators can be divided into different types according to their characteristics, such as momentum indicators, trend indicators, oscillators, etc.

Technical indicators in technical analysis are usually calculated and presented using computer programs, and investors can use these indicators through stock trading platforms or other analysis tools. Common technical indicators include moving average (MA), relative strength index (RSI), Bollinger Bands , average true range (ATR), etc.

What are some methods for analyzing the technical aspects of a company?

When it comes to technical analysis, there are several commonly used methods, including drawing candlestick charts , setting moving averages , pivot points and momentum indicators .

Candlesticks : Candlesticks, also known as “K-line charts”, are a technical analysis method based on icon patterns and are the most commonly used method to track price changes. Candlestick charts are drawn from prices within a single time period in any time range. For example, each candlestick on an hourly chart represents the price trend within an hour, and each candlestick on a 4-hour chart represents the price trend within 4 hours. When drawing a candlestick chart, its high point is the highest point of the company’s stock price within the set time period, and the low point is the lowest point of the company’s stock price within the time period. Each “candlestick” is drawn in blue or red, representing the opening and closing prices within the time period. A blue “candlestick” means that the closing price is higher than the opening price, and a red “candlestick” means that the opening price is higher than the closing price. Some investors also use black and white as the color of the “candlestick”, or other color pairs. Through candlestick charts, technical analysts or investors can intuitively determine whether the stock price will close higher or lower at the end of a given time period based on the candlestick highs and color trends.

Moving Averages : Moving averages are a technical analysis method based on technical indicators. They are one of the most basic and widely used methods. Technical analysts can set one or more moving averages to help them quickly determine trading points. For example, they can set “buy when the price is above the 30-period exponential moving average, and sell when it is below”, which can greatly simplify the judgment process of investment points and quickly decide on transactions. At the same time, more complex crossover moving averages can also be set, such as “buy when the 10-period moving average exceeds the 30-period moving average”.

Pivot Points : This is also a technical analysis method based on technical indicators. The significance of pivot points is to mark important support or resistance levels, which analysts or investors use to determine the price range for entering or exiting positions. Usually, if the pivot points and support or resistance levels suddenly soar or fall, investors will think that a “breakout” transaction will occur, which means that the market price will rise or fall sharply in the direction of breaking through the current range.

Momentum Indicators : This is an analytical method based on technical indicators to measure the intensity of market fluctuations. The basic idea of ​​this method is to determine whether the current price trend is a normal small fluctuation or an important fluctuation trend by measuring the intensity of price fluctuations. The size of the momentum indicator can be used as a signal of trend change. For example, after a stock has maintained a strong and continuous upward trend for a period of time, its momentum indicator begins to steadily weaken, indicating that the upward trend of this stock has begun to fall back, and investors can start to consider selling. In addition to the most basic momentum indicators, there are more complex relative strength index ( Relative Strength Index, referred to as RSI), moving average convergence / divergence indicator ( Moving Average Convergence-Divergence, referred to as MACD), average directional movement index ( Average Directional Movement Index, referred to as ADX) and other momentum indicator analysis methods for more advanced technical analysis.

Below are the 34 technical analysis indicators :

MA : Moving Average is a method used to smooth stock price fluctuations. It helps to observe stock price trends and changes. It mainly includes Simple Moving Average (SMA) and Exponential Moving Average (EMA).

BOLL : Bollinger Bands, which are composed of three lines, the middle line is the simple moving average of the stock price, and the upper and lower lines are the plus or minus values ​​of the standard deviation of the stock price. Bollinger Bands can help analysts determine the fluctuation range of stock prices and the possible direction of price changes.

BBI : Bull and Bear Index is a comprehensive technical indicator. The calculation method of BBI is to add the moving averages of five different periods, namely the 3-day, 6-day, 9-day, 12-day and 26-day moving averages, and then divide it by 5 to get an average value.

ENE : Elder’s Force Index is a technical indicator proposed by stock trading expert Alexander Elder. Elder’s Force Index can help analysts identify trends and changes in stock prices and determine the strength and momentum of price changes.

PBX : Price and Volume Trend Indicator is a comprehensive technical indicator. The PBX indicator is based on the relationship between stock price and trading volume, which can help analysts determine the strength and direction of stock price trends.

MIKE : A technical indicator proposed by stock analyst Michael S. Koval. The MIKE indicator can help analysts identify trends and changes in stock prices and provide buy and sell signals.

VMA : Volume Moving Average is a technical indicator based on trading volume. VMA can help analysts identify trends and changes in stock prices and determine the momentum and strength of stock price changes.

LMA : Linear Moving Average is a technical indicator based on stock prices. LMA can help analysts identify trends and changes in stock prices and provide buy and sell signals.

HMA : Hull Moving Average, a technical indicator based on stock prices. HMA can help analysts identify trends and changes in stock prices and provide buy and sell signals.

SAR : The Stop and Reverse Indicator, also known as the Parabolic SAR Indicator, can identify turning points in stock price trends and provide buy and sell signals.

VOL : Volume Indicator, which can identify the momentum and strength of stock price changes, as well as judge the buying and selling pressure and strength of the market.

MACD : Moving Average Convergence Divergence , which can identify the changing trend of stock prices and provide buy and sell signals.

KDJ : Stochastic Oscillator, composed of three curves: K line, D line and J line. The calculation of KDJ indicator is based on the price data of the highest price, the lowest price and the closing price. K line represents the speed of stock price change, D line represents the average value of K line, and J line represents the gap between K line and D line.

RSI : Relative Strength Index , is a technical indicator used to measure the strength and speed of stock prices. It can be used to determine the buying and selling power of stock prices and provide buy and sell signals.

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WR : The full name is also called “Williams Index”, which was created by American trader William Vann. The WR indicator is usually used to analyze short-term market trends. It evaluates the overbought and oversold status of stock prices by calculating the ratio between the highest price and the lowest price within a certain period of time. Usually, the WR indicator uses a 14-day time period to calculate.

ARBR : The full name is Asking-Bid Ratio, created by Chinese analyst Shao Ping. The calculation of ARBR is based on the buying and selling power in the stock market. ARBR uses a 5-day or 10-day time period to calculate, including two lines: the popularity line and the willingness line. Among them, the popularity line represents the ratio of buying and selling in the market that day, and the willingness line represents the change in trading volume in the market.

ADX : A trend indicator, the full name is the Average Directional Movement Index. The ADX indicator determines the upward or downward trend of stock prices by comparing the stock prices of the previous day and the current day, and provides buy and sell signals. The DMI indicator contains two lines: +DI line and -DI line. The +DI line represents the strength of the upward trend, and the -DI line represents the strength of the downward trend.

ATR : The full name is Average True Range, which is used to measure the amplitude and degree of stock price fluctuations. The ATR indicator is calculated based on the fluctuation of stock prices and the difference between the previous day’s closing price and the highest and lowest prices of the day. The ATR indicator is usually calculated using a 14-day time period.

DMA : Difference of Moving Average is a trend indicator used to measure the trend direction and strength of stock prices. The DMA indicator evaluates the trend direction and strength of stock prices by calculating the difference between the short-term moving average and the long-term moving average of stock prices. The DMA indicator is usually calculated using the 10-day moving average and the 50-day moving average.

CCI : Commodity Channel Index is an indicator used to measure the trend and strength of stock price fluctuations. The CCI indicator determines the trend and strength of price fluctuations by calculating the difference between the stock price and its average price. The CCI indicator is usually calculated using a 20-day time period.

MFI : Money Flow Index is an indicator used to measure the trend and strength of stock price fluctuations. The MFI indicator determines the trend and strength of price fluctuations by calculating the relationship between trading volume and stock price. The MFI indicator is usually calculated using a 14-day time period.

EMV : Ease of Movement Value is an indicator used to measure the trend and strength of stock price fluctuations. The EMV indicator determines the trend and strength of price fluctuations by calculating the relationship between trading volume and stock price. The EMV indicator can help analysts determine whether price fluctuations are caused by changes in trading volume or changes in price itself.

ROC : Rate of Change, also known as the rate of change indicator, is used to measure the rate and degree of stock price change. The ROC indicator determines the rate and degree of price change by calculating the percentage of stock price change. The ROC indicator is usually calculated using a 12-day time period.

SKDJ : A variation of the KDJ indicator, used to measure the trend and strength of stock prices. The SKDJ indicator determines the price trend and strength by calculating the relationship between the closing price and the highest and lowest prices. The SKDJ indicator is usually calculated using a 9-day time period.

MTM : Momentum is used to measure the rate and degree of stock price change. The MTM indicator determines the rate and degree of price change by calculating the absolute value of the stock price change. The MTM indicator is usually calculated using a 12-day time period.

ADTM : Accumulation Distribution Trendline Multi Timeframe, used to measure the buying and selling momentum of stock prices. ADTM determines the buying and selling momentum of prices by calculating the relationship between volume and price changes over multiple time periods. ADTM uses multiple time periods for calculation, and commonly used time periods include 5 days, 10 days, 20 days, 30 days, 60 days, etc.

CR : Cumulative Return, used to measure the buying and selling momentum of stock prices. The CR indicator determines the buying and selling momentum of prices by calculating the relationship between stock prices and trading volume. The CR indicator is usually calculated using a 26-day time period.

TRIX: Triple Exponential Moving Average, used to measure the rate and trend of stock price changes. TRIX determines the rate and trend of price changes by calculating the triple exponential moving average of stock prices. TRIX is usually calculated using a 12-day time period .

BIAS : Bias is used to measure the deviation degree and trend of stock prices. It indicates the deviation degree and trend of stock prices relative to the moving average. When the value of the BIAS indicator is positive, it means that the stock price is in an upward trend; when the value of the BIAS indicator is negative, it means that the stock price is in a downward trend.

PCNT : Percentage Change, used to measure the change range and trend of stock prices. The value of the PCNT indicator represents the percentage of stock price change. When the value of the PCNT indicator is positive, it means that the stock price is in an upward trend; when the value of the PCNT indicator is negative, it means that the stock price is in a downward trend.

DKX : DiaoKongXi, used to measure the long and short forces and trends of stock prices. The value of the DKX indicator indicates the long and short forces and trends of stock prices. When the value of the DKX indicator is positive, it means that the long force is strong and the stock price is in an upward trend; when the value of the DKX indicator is negative, it means that the short force is strong and the stock price is in a downward trend.

UDL : Up and Down Line, used to measure the strength and trend of stock price increases and decreases. The UDL indicator determines the strength and trend of price increases and decreases by calculating the sum of the increase and decrease of stock prices in multiple time periods. The UDL indicator is usually calculated using a 10-day time period. When the UDL indicator value is high, it means that the stock price has a strong upward force; when the UDL indicator value is low, it means that the stock price has a strong downward force.

VRSI : Volume Relative Strength Index, used to measure the strength and trend of stock prices. The VRSI indicator determines the strength and trend of prices by calculating the ratio of the stock price’s trading volume to the average trading volume over multiple time periods. The VRSI indicator is usually calculated using a 10-day time period. When the VRSI indicator value is high, it means that the stock price is relatively strong; when the VRSI indicator value is low, it means that the stock price is relatively weak.

XS : Relative Strength Index (eXcessive Strength), used to measure the strength and trend of stock prices. The XS indicator determines the strength and trend of prices by calculating the degree of deviation of the closing price of the stock price relative to the moving average over multiple time periods. The XS indicator is usually calculated using a 10-day time period. When the value of the XS indicator is high, it means that the stock price is relatively strong; when the value of the XS indicator is low, it means that the stock price is relatively weak.

BIBIBOLL : The Bibi Bollinger Bands indicator is further developed on the basis of the Bollinger Bands indicator. The BIBIBOLL indicator adopts the concept of pens, and determines the market’s buying and selling points and entry and exit signals by identifying the pens formed by the medium and long-term trends of the market. Its calculation method is to translate the middle track of the Bollinger Bands indicator upward by a certain proportion of the standard deviation to form a new upper track, and then translate the middle track downward by the same proportion of the standard deviation to form a new lower track. When the price breaks through the lower track, the market has an oversold signal, and you can consider buying; when the price breaks through the upper track, the market has an overbought signal, and you can consider selling.

What are the characteristics of technical analysis?

The biggest advantage of technical analysis is that it focuses on stock prices and trading volumes, and combines multiple data models and chart production for analysis, which greatly simplifies the process of trend judgment and helps speed up investment decision-making.

Several characteristics of technical analysis are as follows:

Based on historical data : Technical analysis mainly predicts the future trend of stock prices by analyzing historical prices, trading volumes and other data. Therefore, technical analysis pays more attention to the historical market conditions and price trends.

Graphical presentation : Technical analysis often uses charts and graphs to present data such as price and volume, helping analysts to observe market trends and price changes more intuitively.

Relatively short-term : Technical analysis pays more attention to short-term price changes and trends, and the indicators and tools commonly used also pay more attention to short-term price fluctuations.

Focus mainly on price changes : Technical analysis focuses mainly on price changes and often ignores the company’s fundamental factors, such as performance, financial status, management and other factors that affect stock prices.

Can be combined with other analysis methods : Although technical analysis is an independent analysis method, it can also be combined with other analysis methods, such as fundamental analysis, event-driven analysis, etc., to make more comprehensive investment decisions.

However, technical analysis also has its drawbacks. Since the data used in the analysis are all historical data, some analysts or investors believe that history will not repeat itself. Whether the evaluation results obtained from history will continue to occur in the future is their biggest doubt about technical analysis.

Another point is the investors’ tendency to follow suit. When technical analysts or investors judge that the price is suitable for selling after entering a certain range, they will start selling when the stock price enters that range. Other investors in the market will also sell after seeing the stock price fall, which will further lead to the stock price falling. From the data, the stock price did start to fall as the technical analysts estimated, but this has nothing to do with the company’s own operating ability, but is more caused by market sentiment.

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