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Technical Analysis is the process of evaluating investments based on past price movements and volume trends. The technical analyst attempts to identify and capitalize on trends through a visual review of charts using technical indicators, like tops, floors, reversals and oscillators.
Synonym: chart reading
For context, the technical analyst uses much less information to make trading decisions than fundamental and quantitative analysts who use some form of value assessment, whether that be sales levels, EBITDA, pre-tax income or net income.
It was Benjamin Graham who said "in the short run the market is a voting machine but in the long run, it is a weighting machine".
So in this example, what is being 'weighed' is the level of income produced by the company. So given that the technical analyst doesn't care about the 'weighing machine' aspect, he or she is only looking for near-term trends to capitalize on when the popularity aspect, or 'voting' of investors takes on greater importance.
During periods of high volatility in the markets, like during the Great Recession of 2008-2009 and again in the pandemic period of 2020, less rational value-based trading occurs, and that's when technical analysts see more opportunities. During these periods technical analysts en masse, many at prop trading desks, have a greater impact on stock prices than longer-term investors.
Ken: On our ADV, the box next to technical
analysis is checked. Is that still valid?
Kay: Yes, I get a feel for near-term supply and demand using technical analysis.
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