A:

Technical analysis is a method of analyzing securities by evaluating current and historical price and/or volume activity. Technical analysts use this information to predict future price movements and to identify high-probability trade entry and exit levels. Technical indicators are mathematical calculations based on price and/or volume activity that can be applied to any price to visually display the calculations' results, providing investors and traders with a dynamic view of the markets. Some indicators typically appear directly over the price chart, while other are displayed below. Multiple indicators can be used on one price chart. Nevertheless, too many indicators, or the use of similar indicators, can lead to confusion and unreliable signals.

The best way to start using technical analysis is to approach it as you would any subject that you wanted to learn more about and do your homework. A growing number of resources, including books and articles, are available both in print and online formats. Many websites provide educational content in the form of videos, webinars and chat rooms. You might want to start by learning about the different types of technical indicators, including those that measure momentum, trend, volatility and volume. You do not necessarily have to understand the math behind the indicator (some of the math is quite advanced and complicated). Nevertheless, it is a good idea to at least understand the logic: what does this indicator measure and what can that tell me about the market?

Once you have a basic understanding of the various types of technical indicators, you can apply one of the indicators to a price chart of your choosing. A moving average, for example, one of the most popular and versatile technical indicators, calculates the average value of a security's price over a specified period of time. Moving averages are easy to interpret: if a price bar moves above the moving average, then the price is greater than the average over the X previous price bars. If the price bar moves below the moving average, however, then price has fallen below the average of the X previous price bars. Watching the indicator in a live market can help you understand how it works and what it means.

The study of technical analysis is a lifelong learning process. Starting with well-known indicators such as moving averages, stochastic oscillators and the relative strength index can help you learn how these valuable tools are used to help investors and traders make trading decisions.

It should be noted that technical indicators do not provide trading signals: it is up to each user to interpret the information delivered by an indicator or group of indicators. You may find that certain indicators "make sense" to you, and many technical analysts eventually develop precise and objective trading plans based on technical indicators.

RELATED FAQS
1. ### What types of data are necessary to make a technical analysis?

Understand what technical analysis is, the basic theory behind employing it and what data inputs are needed to conduct it. Read Answer >>
2. ### When and why are technical indicators useful?

Discover what technical indicators are, when they are useful and how their specific design limits their meaningfulness to ... Read Answer >>

4. ### How do technical analysts predict bull markets?

Dive into the methods and assumptions of technical analysis, and see how analysts go about trying to predict a bull market ... Read Answer >>
5. ### How does fundamental analysis differ from technical analysis?

Learn about the differences between technical analysis and fundamental analysis, such as how these investment strategies ... Read Answer >>
Related Articles

### Moving Average

Learn about this basic technical indicator and how you can use it to chart the value of a security's price over a set period.

### Using Technical Indicators To Develop Trading Strategies

Unfortunately, there is no perfect investment strategy that will guarantee success, but you can find the indicators and strategies that will work best for your position.

### Debunking 8 Myths About Technical Analysis

Investopedia exposes a few common myths about technical analysis.
4. Investing

### How to Use Trading Indicators Effectively

Careful and effective use of technical indicators can improve your odds of finding an investmentâ€™s best entry and exit points.

### Pivot Points

Learn about the different traders and explore in detail the broader approach that looks to the past to predict the future.

Select multiple indicators, avoid information overload and optimize indicators to effectively use technical analysis tools.
RELATED TERMS
1. ### Technical Indicator

Any class of metrics whose value is derived from generic price ...
2. ### Technical Analysis

A method of evaluating securities by analyzing statistics generated ...
3. ### Ease Of Movement

A technical momentum indicator that is used to illustrate the ...
4. ### Confirmation On A Chart

An indicator or chart pattern that provides evidence that the ...
5. ### Unique Indicator

A technical indicator that can be developed using only core elements ...
6. ### Hybrid Indicator

A technical indicator that combines core elements of chart analysis ...
Hot Definitions
1. ### Quantitative Easing

An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
2. ### Risk Averse

A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
3. ### Indirect Tax

A tax that increases the price of a good so that consumers are actually paying the tax by paying more for the products. An ...
4. ### Zero-Sum Game

A situation in which one personâ€™s gain is equivalent to anotherâ€™s loss, so that the net change in wealth or benefit is zero. ...
5. ### Beta

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. ...
6. ### Demand Elasticity

In economics, the demand elasticity refers to how sensitive the demand for a good is to changes in other economic variables. ...