A Note on Technical Stock Analysis

Technical Analysis

1. Support and Resistance Levels: derived from human behavior
   
2. Resistance levels are found at previous highs and previous lows: when a stock goes above highs; it has "broken out". When a stock goes below lows; it has "broken down"
   
3. Conservative clients should stay away from volatile stocks
   
4. Stock Traders thrive on volatility for buying and selling opportunities
   
5. Helps establish psychology influences of stock performance

Technical analysis tends to only be useful for making short term decsions such as establishing entry and exit points in the near term. For investors with a long term focus the emphasis should be on Fundamental Analysis.

Another use of technical analysis is for options pricing. When looking at the (VIX) - Stock Market Volitility Index - an options trader can establish whether option premium levels are good or bad. Good premiums are usually afforded by high volitiliy and Bad from stability.