Section: 1 Introduction

Sub Section: 1 Advantages of Technical Analysis

Technicians point out several major problems with accounting statements:

1. They lack a great deal of information needed by security analysts.

2. Corporations may choose among several accounting procedures and principles for reporting purposes and these procedures and principles can produce vastly different values for expenses, liabilities and assets.  

3. Many psychological factors and other nonquantifiable variables do not appear in the financial statements. Examples include employee training and loyalty, customer goodwill, and general investors’ attitude towards an industry.

 The major advantage of technical analysis is that it is not heavily dependent on financial accounting statements – the major source of information about past performance of a firm or industry. 

 

Technicians only need to quickly recognize a movement to a new equilibrium value for whatever reason – that is, they do not know about an event and determine the effect of the event on the value of the firm and its stock. 

 

Technicians do not invest until the move to the new equilibrium is underway, they contend that they are more likely to experience ideal timing compared to fundamental analysts.

 

At the broadest level, technical analysis can be divided into two parts:

 

A. Charting

B. Technical Indicators

 

In the following sections, we will be discussing the most commonly used charting techniques.

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