Understanding Stocks

11
C H A P T E R
Let’s Get Technical:
Introduction to
Technical Analysis
The ironic thing about technical analysis is that it’s sometimes not
technical at all. In fact, some people believe that technical analysis is
easier to understand than fundamental analysis (although not at first).
Have you ever heard the saying that one picture is worth a thousand
words? If you have, then you’ll appreciate technical analysis because it
relies on charts and graphs to help you determine what stocks to buy or
sell. When you rely on mechanical tools like indicators and oscillators,
you will be less inclined to trade on the basis of emotion.
Technical analysis is also used to forecast what could happen in the
future. By looking at how stocks have reacted in the past, you can make
assumptions about what they might do in the future. The shorter the
time frame, the more accurate your prediction can be. [Winston
Churchill once said, “The farther backward you can look, the farther
forward you can see.” Quoted by James C. Humes, Churchill: Speaker
of the Century (Scarborough Books, New York, 1982).]
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