The Basics of Technical Analysis

As you can probably assume at this point, I have barely scraped the surface of what technical analysis has to offer. Each of the topics introduced today is worthy of an article itself, not to mention the numerous subjects we haven't even mentioned, or barely touched on, such as chart patterns and various indicators.

Technical analysis has gained in popularity in recent years, but there is quite a bit of criticism of it, primarily from investors who study company fundamentals. They say that chart-reading has no predictive power whatsoever, representing only a company's past, not its future. Their feeling is that the only way to truly judge a company is by the numbers generated by its business.

While I believe that both fundamental and technical analysis are equally valid ways to study the market, I think that critics are missing out on valuable information by not looking at charts. For example, if a stock goes up $5 in one day on great company news, but the volume is really light, you can reasonably infer from that that investors weren't as impressed by the news as the jump in price might lead you to believe. That is not the sort of insight you'll get from a company's Securities and Exchange Committee filing.

Is technical analysis the end-all, be-all, one-and-only-way to look at stocks? Absolutely not. But whether looked at alone or in conjunction with fundamental analysis, the information and perspective it provides are invaluable.