A technical analysis of equity is a method of judging stocks, also known as equities, that concentrates heavily on the past prices of stocks in an effort to predict their future movement. This makes technical analysis different from fundamental analysis, which is more concerned with the companies that issue the stocks. There are many different ways to approach a technical analysis of equity, but most include composing charts to show how stock prices have moved in a specific period of time. In addition, technical analysis often includes the study of trading volume and moving averages.
There are generally two ways for an investor to approach choosing equities, which is another name for stocks. On the one hand, they can go through a fundamental analysis, which focuses on the companies behind the stocks. This theory is based on the assumption that the most profitable companies over time will be the most desirable to investors, regardless of what the stock prices are. By contrast, a technical analysis of equity doesn't really care about the companies issuing stocks. Instead, it uses tools like charts and averages to find out where prices are headed in the future.
Charts may be the most essential tools in any technical analysis of equity. These give a visual representation of how the price of a particular stock or a group of stocks has performed over a certain time period. Not only does it allow an investor to see if a price has moved up or down over time, but it also allows him or her to see volatility, which is a measure of how much an equity changes price direction over time.
As investors get deeper and deeper into a technical analysis of equity, the charts get more detailed. Many charts have indicators for the volume of trading for a certain stock. Volume is the amount that a stock has been bought and sold in a period of time. Some investors feel that price movement accompanied by solid volume is the indication of a trend.
Moving averages are also often utilized in a technical analysis of equity. A moving average is a study of the average price of a stock as it advances through time. When new data replaces old data on a moving average chart, it can reveal long-term trends in the movement of the price of a particular equity. As with the other methods mentioned, moving averages can also be used to study prices of large groupings of stocks as well as individual equities.