Part 3 of 4
- Technical analysis is the study of historical market data including price and volume.
- It helps long-term investors time their entry (buy) or exit (sell). If timing is off, gains will be lower no matter how strong business fundamentals are.
- Technical analysts depend on tools to find trends and patterns in the stock market.
- Such tools include moving averages, oscillators, support and resistance levels, and technical indicators.
- Observe stock’s level of support & resistance in buying and selling.
- Use psychology to study past performance to predict market behavior that has been illogical and unpredictable during the Covid pandemic.
- Technicians also look for relationships between price/volume indices and market indicators.
- Examples include the moving average, relative strength index and MACD (Moving Average Convergence Divergence).
- A good momentum indicator is the MACD index to forecast crossover signals. For example, short 20 day moving average crossing over long term 200 day average indicates a buy signal; short crossing under long indicates sell signal.
- Advantages of Technical Analysis: Charts provide a clear picture of market action. They provide objective data without human emotions.
- Disadvantages of Technical Analysis: You can get mixed signals when two different indicators offer contradictory information. One indicator can show a “Buy” signal while the other shows a “Sell” signal.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation.
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He retired after 50 years of defending taxpayers audited by the IRS, EDD, BOE and other governmental agencies. He published a book on “How to Avoid or Survive IRS Audits” that’s available at Amazon. Readers may email tax questions to email@example.com.