However, as the title of this post indicates I would like to go into slightly more detail on technical analysis. The basis of technical analysis comes from analysis of quantitative data and graphs. Using technical analysis we are able to pick points of support and resistance for price in the future. Support points are prices in the markets where large groups of traders buys will continue to buy the product. Resistance points are prices in the market where a large group of traders will sell the product. This would regularly be due to ideas of under or over pricing, which they intend to exploit. Often due to psychological reasons these tend to move towards round numbers. These points can be found through an examination of graphs, as seen below.
We can learn a lot from analyzing this graph with the benefit of hindsight. An example of a support point (a point that it is unlikely for the price to descend below), can be found on the line A. At the $33 point, the price hit this support point and then went back up 4 times. This could be because some traders believe that at the support point this stock is very cheap and undervalued and thus demand rises. The line B is a good demonstration of a resistance point (a point that the price is unlikely to rise above). The price hit the $35 mark twice before retracing and then breaking through. A breakout is a price rise beyond the resistance or support point. Once this occurs often new support and resistance points are established, often at the point that was broken (ie. Support becoming resistance points or vice versa).
This will just be the one part of many on this very large topic. If you have an idea on what you would like the next post to be on or would just like to contact me please email illuminatingfinance@gmail.com
