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It is possible
that what is now called technical analysis, or
market analysis, is the oldest form of financial
analysis in the world. Several centuries ago in
the corn markets of England and the rice markets
of Japan traders developed a method of recording
transactions that would enable them to see at a
glance how much people had been paying for the
product. With the help of that information they
were able to assess where supply and demand were
in balance and thus see better what price they
should agree for their future transactions. The
form that this monitoring took was a series of
markings on the page at different levels to
represent prices as they rose and fell.
Where fundamental analysis focuses on value,
technical analysis concerns itself with price,
volume of transactions and individual/group
psychology. Part of this discipline involves the
charting of historic prices for all markets and
individual items; part is concerned with the
statistical analysis of price and volume time
series and part with the examination of the
current emotional state of the relevant market
in its continuous battle between fear and greed.
Analysing price charts includes identifying
short, medium and long-term trends, pinpointing
future potential trouble areas where
consolidation shows that supply and demand have
been evenly balanced in the past and calculating
price targets. As a result, even for the
convinced fundamentalists, performance can be
enhanced by deciding when it is desirable to buy
or sell items that have been identified as
attractive or dangerous in terms of value.
One of the many attractions of technical
analysis is that its methodology can be applied
almost identically in any market anywhere. The
same techniques can be applied to currencies,
commodities, bonds, interest rates and equities.
Bar charts, point and figure charts, candle
charts, swing charts, volatility, momentum or
relative analysis, Elliott waves, Gann angles
and levels, an understanding of normal or
extravagant behaviour - they are all tools
available with a study of technical analysis and
they should all lead to better investment
profits given consistent and intelligent
application. |
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