Technical Analysis
Another method of identifying companies that may be good candidates for investment is through technical analysis. This method looks for patterns in the prices of stocks. There are thousands of different technical analysis methods so their description is beyond the scope of this essay. Some of the most popular are Bollinger bands, 200 day moving averages, Japanese candlesticks, Fibonachi Waves, trading volume and many, many others.
One example will demonstrate how technical analysis may be used. An analyst
may calculate each day the 200-day average price of the stock. At the same
time he may calculate the 20-day average price of the stock. If the 20-day
price is below the 200-day price and is moving towards the 200-day price, the
stock may be inexpensive and may be worth further examination as a possible
investment. If the 20-day price is above the 200-day price and is moving down,
the stock price may be expensive, and it may be time to sell the stock.
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