Use technical analysis to profit from short-term opportunities and make better long-term investing decisions.

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After my first year of tracking portfolios using fundamental analysis, I discovered and became interested in technical analysis. Technical analysis involves using past price and volume action to determine future trends in stock prices.

As you can imagine, technical analysis is a little more difficult than fundamental analysis. Nonetheless, it is simple enough that the average investor can learn these techniques and apply them to make better investing choices. I have found that combined with good self-discipline and a solid trading system, that short-term trading is more profitable and safer.

If you are serious about making money investing, do not ignore technical analysis. Even a very basic understanding can improve results drastically. The topic of technical analysis is so dense that I will only go into the basics in this section and supply links to other sites and books if you wish to learn more.

Charting - Charting refers to looking at charts to determine whether a stock price will go up or down. I use candlestick charting because it is much easier to see price movements than with the traditional line charts. Various patterns indicate whether a stock is likely to move up or down in the short term. Stock charts are the first thing I look at when I analyze stocks.

Indicators - Literally hundreds of indicators exist for analyzing stocks. Some of the more common and popular indicators are RSI, stochastics, OBV, and Accumulation-Distribution. Indicators can be useful as verification of bullishness or bearishness in charting patterns.

Price/Volume - Most indicators and charting patterns use the following information: Opening price, closing price, high price, low price, and volume. In general, if a stock is bullish, it will experience higher volume on up days than down days. If it is bearish, the opposite will occur.

Support and Resistance - Almost all technical analysis texts reference support and resistance - hidden levels that stock prices tend to bounce off of. A stock often rallies, often to pull back when hitting a major resistance level, such as an old high. Similarly stocks oftentimes will fall until hitting support.

The simplest way to locate support and resistance is to look at past price action for a stock and see what price levels the stock bounces off of. Although support and resistance can repel further price movement, strong price action can break through these price levels. Nevertheless, good traders often use these levels to pick good entries into stocks.

Sector and Market Analysis - Asides from analyzing individual stocks, one should also analyze the sector that the stock is in as well as the overall market conditions. An estimated 80% of a stocks movement is tied to sector momentum.