This is part three of the three-part How to analyse stocks” series. If you haven’t read part one introducing analysis of stocks, jump onto that first, then head to part-two which looks at fundamental analysis and financial ratios. Then meet us back here :)

So we’ve looked at the role of stock analysis in helping investors make informed decisions, and we’ve looked at how fundamental analysis works.

Now, we get into technical analysis.

‍TF is technical analysis?

Technical analysis uses market prices to predict the future movement of a stock’s price.

Essentially, technical analysts evaluate stocks based on their current price and trading volume data (aka the quantity of shares traded on a daily basis).

Technical analysts believe that historical price movements can provide clues about future price movements. So they use fancy charts and other tools to try to identify patterns in the data that may give an indication as to whether a stock is likely to rise or fall.

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‍What sort of investors usually use this method?

Technical analysis is used more so by short-term investors who track price movements and time their entry and exit to make big bucks.

It’s also a method that’s used more frequently by experienced investors who have developed an understanding of share market price movement patterns and trends.

Think of technical analysis a bit like surfing. Stay with us here.

In surfing, you wait for a wave to come, and then you ride it to the shore. In technical analysis, you wait for a stock's price to move in a particular direction, and then you buy or sell it. 

While surfers need to read the swells of the ocean to catch a wave, a technical analyst reads charts and indicators to catch a stock's price movement.

And we know that surfers can't control the waves, like a technical analyst can't control the stock market. 

But both of them need to navigate through a changing environments and markets… and adjust their strategy. 

In both surfing and technical analysis, experience and practice are crucial in order to make informed decisions and increase the likelihood of success.