With how much price changes in a day, it is sometimes easy to forget that each price shown on a chart is the price an individual somewhere in the market was willing to spend to buy a stock at and another was willing to sell at. To claim that there are no patterns in people's decisions of buying and selling, is absurd, and contradicts with every single investing approach which attempts to beat the market. One such approach many individuals in this subreddit may appreciate is value investing, which profits off of individuals tendencies to oversell stocks beyond their fair valuation in fear.
In spite of the fact that there are clear patterns in investor's tendencies, a lot of people on the investing subreddit seem to have the impression that technical analysis is like astrology but for charts, just finding patterns and randomly guessing what direction a price will move in. This is understandable, since several clowns think drawing a head and shoulder or ascending triangle actually mean anything when in reality they are just forms of noise.
The true value of technical analysis comes with listening to how the market believes a stock should be valued.
With regards to trends in technical analysis, if one sees the chart of $SPX, it is clear the etf is in an uptrend from one glance at a chart, and can use indicators like the price being above the Ema 300 to confirm this. If a stock is trending up, it is usually better to be in as much as possible, while in a downtrend, you want to be out of a stock as much as possible to minimize downside. This is one simple application of technical analysis.
Additionally, technical analysis can be used to choose areas to buy and sell in. Every investor has prices they think a stock is cheap at and expensive at. If you look at a chart and see that investors tends to sell off a stock at $400, you clearly won't want to buy the stock at $400 unless some very positive earnings, news or trends develop, as the market clearly believes that the company is expensive at 400.
Submitted January 18, 2022 at 01:22AM by Infiten https://ift.tt/34TTqGl
