In the world of stock trading, there are two types of market analysis: fundamental and technical. For the most part, people from both schools of thought get along quite well, but to say that they are close to agreeing is a distant dream. Most retailers (ordinary people who operate the market) have been taught fundamental analysis to some degree. They are aware of the reality that stock prices are affected by earnings reports and that a company’s total debt load can only be so high. However, few understand why the price of a stock fluctuates so much from one day to the next. And that price change is exactly what technical analysis sees.

In its simplest form, technical analysis could be considered chart-based behavioral finance. It is the study of how people react to stocks, futures, currencies, or any other trading vehicle by observing their behavior through the price action of the commodity they are trading. In this series of articles, I’m going to open your eyes to the world of technical analysis and show you how you can use it to advance your own trading.

To be a technical analyst you must subscribe to the first rule of technical analysis. In fact, this first rule was introduced over a hundred years ago by Charles Dow, and it is the foundation of all technical trade. It says this: all the fundamental data has already been included in the price of a share. In other words, the price already reflects that data. The theory here is that it doesn’t take long for people to figure out the basics. In fact, despite the special announcements, basic fundamentals really only change four times a year when a company announces earnings. So why does the price of a stock keep changing on a daily basis, sometimes changing dramatically in a small window of time?

The answer is speculation. And that’s what technical analysis observes. The reason a stock’s price moves despite relatively stable fundamental data is the extreme optimism, or pessimism, of the people trading with that company regarding the future release of fundamental data. Ultimately, speculation is always fueled by human emotion. And since people tend to be creatures of habit, their emotions also tend to be quite predictable. And this is what technical analysis studies in depth.

In the next remaining articles in this series, I’ll address the core data we look at when making technical business decisions. This is what we are going to discuss:

• Stock price cycles and trends
• Charting your actions
• Candlestick chart
• Trend lines and trend line construction
• Support and resistance zones
• Technical indicators
• Chart Patterns
• Market psychology
• Moving averages

In just a few articles, you will learn everything you need to know about why technical trading is the best way to analyze your trades. This knowledge will not only make you a better trader, but also a much more profitable trader.