To determine what worldwide stock markets will do as far as fluctuations in price, involves first determining which school of thought will be utilized regarding the analysis of companies and the investment prospects they pursue. The most widely used school of thought which has proven reliable over multiple decades is the school of fundamental analysis.
Fundamental analysis views not only the financial opportunities of a company, but also the likelihood of accomplishing these goals in respect to their competitors. Technical analysis, on the other hand, has been successful in use, but not very structured or scientific. Thus, the question again arises, what is the connection between stocks and technical analysis?
Technical analysis is the study of past market trends to help forecast what future stock prices will be. However, this doesn’t explain the entire connection between technical analysis and stocks. Needless to say, what makes people conclude that the price of a stock is determined by looking at just data and not take into consideration of the overall condition or financial state of a company?
Some of this stems from technical analysis being used by market analysts who can downgrade stock or anticipate higher earnings. Trading stock is influenced not only by the markets daily swings or isolated events, but actually how markets move with time and the fallout from some of these events are cumulative, therefore experienced over time periods.
The utilization of much data is primarily what technical analysis consists of. The monitoring of trading volume charts, older stock quotes, including much more data helps in the development of graphs and charts to help determine how long a particular move in a company can continue and also the specifics of stock market trading.
Comparing technical analysis and fundamental analysis of the same stock market shows that in the short term technical analysis is a short term predictor. Just as the technical analyst reputation has become, of being a short term predictor. Conversely, fundamental analysis is a long term tool that helps predict long term trends in markets.
Overall, technical analysis is more detailed due to the large amount of terminology used which describes existing trend lines and graphical shapes. Typical investors without the knowledge needed can be easily discouraged when trying to comprehend this type of data. For example many terms used to describe trends are ambiguous and used interchangeably (e.g. elbow, shoulder). This can denote upswings or downswings with leveling off at intervals. This can make it harder for interpretation.
Overall, those who are familiar with investing still question, \”Technical Analysis vs Stocks…Is there a connection?\” in regard to how can these types of analysis can be used everyday. Honestly, the fact that technical analysis is very subjective to the person who uses it, including being a bit imprecise brings concern. Fortunately, since it has been successful on the whole, this tool is still arguably a good one to use for market analysis.