Technical analysis
Technical analysis of stocks on the stock market
Technical analysis does not answer the question "Which stock should I buy?", but rather the following question: "When should I buy a stock on the stock market?". To do this, it is based on the statistical study of the latest stock market transactions in which the stock in question has been the subject.
Investors who practice technical stock market analysis are not interested in determining whether a stock's price is overvalued or undervalued. Their goal is to predict the direction of financial markets, and therefore to anticipate a future rise (or fall) in the stock's price, based on the history of recent transactions. These are compared to trends observed in the stock's price variation in the past.
The different types of stock charts
Thanks to color coding, you can easily distinguish positive stock price changes (in green) from negative changes (in red), which helps identify trends. In addition to these charts, you also have the option of overlaying an index, such as the EUROSTOXX 50 or the S&P 500, to analyze the price performance of the relevant stock and compare it to that of the corresponding benchmark index.
An effective starting point for an investor new to technical analysis in the stock market is to learn some of the patterns commonly observed when studying stock charts. These general directional movements are called trends. Learning the basics is essential for beginning technical analysis so that you can effectively study stock charts.
Both the uptrend and the downtrend are fairly easy to identify. If you analyze any stock's price over a long enough period of time, you'll almost certainly identify both trends.
To study more complex patterns, it is also interesting to analyze what happens when an upward trend is followed by a downward trend. This is called a trend reversal. This sometimes happens quite suddenly. The graphical representation of the stock price is then a V-shaped curve. This movement can, however, also be more gradual.
Stock market movements (bullish or bearish) generally evolve around two levels: support and resistance. As its name suggests, support is a price below which the stock price has difficulty falling. Conversely, resistance is the price that the stock has difficulty exceeding.
One of the most well-known technical analysis patterns among investors is the head and shoulders (H&S) pattern. In this pattern, the head represents the resistance level that the stock price struggles to overcome, while the neckline (the hollow between the base of the shoulders and the head) represents the support level, as it allows the stock price to remain above a certain level, even after a downtrend.
The different indicators of stock market graphic analysis
The trading platform also gives you access to many different chart indicators to complement the stock charts representing stock prices. On each product page, you can click the "interactive chart" button and a new window will open.
What is a moving average?
Moving averages are probably the most commonly used indicator by traders in technical analysis in the stock market. Moving averages are weighted averages used to study the current direction of a trend. Using a weighted average value over a period helps smooth out daily fluctuations, thus providing a more readable indication of the overall trend. Via the trading platform, you can define a moving average over a defined period (n).
How reliable is technical (graphical) analysis in the stock market?
For investors new to technical stock market analysis, you will quickly realize that these indicators can be interpreted in a variety of ways. Therefore, it is necessary to experiment with a number of investment strategies and use a combination of indicators to achieve meaningful trading results.
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