Technical analysis is a method of stock market research using indicators, charts, and computer programs to track price trends of stocks, bonds, commodities, and market indexes. A technician understands the fundamental values of securities but focuses on the historical behavior of the market, industry groups and individual stocks. The goal is to use their price movements, trends, and patterns to forecast future direction and changes in character. Most of this analysis is based on the fact that the values of stocks reflect what people think they are worth, not what they are really worth.

Technical Indicators are used to generate buy or sell signals when specific buy or sell parameters are met. Cycle analysis; historically repetitive rhythms in price action, can also be helpful in initiating technical trades. The stock market historically moves in identifiable cycles. To be a successful investor, you must be able to determine the current phase of activity. Historical bottoms or cyclic lows are the most common signals that analysts attempt to uncover. These downside support areas are more reliable and take longer to develop than the cyclic highs. Using a long-term, monthly chart of the DOW, it is relatively easy to spot the four-year rhythm. The most recent bottoms occurred in 1990, 1994 & 1998.

In any type of long-term technical analysis, it is important to understand that, market cycles usually precede economic cycles. The many facets of our economy that determine the overall financial health of the nation are anticipated by the emotion of the market. Any study that compares key historical events with the movement of a major index will demonstrate how war, recession, or a presidential election can influence the current cycle.

It is important to become familiar with the common investment indicators used to determine the overall movement of the market and apply this knowledge as a practical part of your trading strategy. Once you understand the basic terms, try to start out with common indicators like stochastics, moving averages and relative strength. There are hundreds of other systems and formulas but these have been around for years and they work very well for beginners. After you are comfortable with your new tools, practice trading with the indicators you are using until your portfolio is profitable on a regular basis.