Understanding Technical Analysis

Technical analysis is an investing method that is used to evaluate investments and identify trading opportunities in price trends and patterns by using charts. By tracking price and trading volume, investors can recognize patterns that help them guide their trading decisions.

A line graph connects various data points to show specific patterns over a defined time horizon of interest for an investor, and can also be known as a line plot or line chart. For investors, the data is used to create a visual representation of a company’s historical stock price moves.

An average return is a measure or indicator that helps investors and analysts gauge what the returns for a particular stock or security has been over a set period of time. In sum, it is the average return calculated over a time period of interest to the investor.

Trading indicators are tools that an investor can use to help gauge future performance of a stock or security. Two of the most common parts of an indicator are to build a unique indicator to uses patterns and common chart patterns to recognize trends, and to use mathematical functions to predict future support and resistance levels of stock prices.

Relative strength involves selecting investments that have been outperforming the market and is used by technical analysts and value investors to inform their investing decisions. Relative strength investors generally believe that the trend of outperformance will continue, which is why they are sometimes referred to as momentum investors.

In trading circles, a hockey stock chart is a price line chart that looks like a hockey stock, which depicts a sharp rise in prices after a short period of stability. As one can guess, this is illustrated by a chart that looks like a hockey stick with a short, curved blade, attached to a long stick that rises at an angle.