Technical Analysis compares historical information on stock prices and volume of shares traded. Technical analysis is basically the study of supply and demand in the stock market. Understanding the way the price moves in relation to the Open, High, Low and Closing Prices on a given minute, hour, day, week or month and comparing that to the volume can give an insight into future market direction. The various types of data needed for technical analysis can be easily displayed visually on a stock chart so it can be assessed very quickly. A basic stock market lesson can teach investors how to read the various data on a stock chart.
However taking a stock market lesson that only teaches technical analysis can be misleading. There are many other factors that should be considered when making stock picks. These other areas are integral to an investors total understanding of how the stock market works. Other considerations are Fundamental analysis, the state of the economy and investor sentiment. From an individual point of view to be a successful stock market investor you also need to understand how to manage risk by how you manage your portfolio and diversify the industry sectors you invest in. It is also important to have a range of proven stock market strategies for different market conditions and to stick to the rules of your strategy. By understanding how the stock market works and the prevailing market conditions, if you stick to the appropriate strategy it is the best recipe for success. This is one of the hardest stock market lessons to learn, that is the psychology of trading. Being able to control you natural human emotions of fear and greed.
Understanding how the psychology of the masses of investors works is very important to understand market sentiment and predict future market direction. This understanding of how the stock market works can be a key to being a successful trader or stock market investor. It often can not simply be learned in a stock market lesson, it comes from experience.
Common indicators monitored for technical analysis are moving averages, and the MACD, stochastic, volume and relative strength.
Moving averages plot the average stock price for a given period and plots it on a chart. Typically investors look at a short and long term moving average to identify the trend for the stock.
MACD stands for the moving average convergence/ divergence. It is a visual representation of the relationship between 2 specific moving averages. It gives a shorter term trend movement of a stock than the specific moving averages themselves.
Stochastic is a trend that gives a really short term indication of if a stock is overbought or oversold. When used in conjunction with other technical analysis indicators may give valuable information on future stock price movements.
One very important stock market lesson to understand how the stock market works is to understand the importance of volume. All technical indicators are more significant if there is larger volumes of shares being traded. Volume usually increases on news or demand. So stocks with high average daily trading volume are less likely to have their stock price manipulated. So the beginner investor should undertake a stock market lesson in technical analysis to better understand how the stock market works. This should be done before investing real money into the market.
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