The Psychology Behind Technical Trading
Markets are based on willing sellers interacting with willing buyers. The seller offers something of value and the buyer is willing to give up something of equal value to obtain what the seller is offering. In the stock market the value placed on stocks (the thing offered between sellers and buyers) is based on the beliefs, needs, and wants of the seller versus the beliefs, needs, and wants of the buyer. The price of stocks fluctuate because the beliefs of buyers and sellers differ at any point in time and at any given price of a stock.
Beliefs
Sellers of a stock usually believe the price of the stock will soon drop so they want to sell and take profits or minimize further loss. Buyers believe that a stock price is going to rise so they are willing to buy at the current price with hopes that their belief is true. Sometimes the beliefs of buyers and sellers can be the same but their time horizons can be different. For instance in the long-term both buyer and seller may believe the price of a stock will rise, but the seller may not have the desire to wait long-term so he or she sells to the buyer that is willing to wait.
Technical Analysis Can Identify Sentiment And Thus Price Movement
Time, price, and volume used in combination are the key metrics that most indicators are based on to calculate whether it is fear or greed that drives the market, or a particular stock, at any given time. We won't discuss any specific indicator here except to say that even when trading stocks based on their fundamentals (expected earnings, etc) technical indicators are a good way to identify how fast or slow the price will move to meet the expectations based on the fundamentals.
The technical indicators used to produce the watch lists on this site are calculated daily at the end-of-day when all price and volume for every stock is definitively known. With our watch lists in hand at the beginning of the trading day our members can develop a trading plan that can help them compete with the high frequency trading programs in finding and executing profitable trades..