Technical managers select stocks according to observed patterns of price
behaviour.
They believe that price is the only important variable to be analyzed and
that the historical price pattern alone predicts the future direction of the
stock price. Before computers, these managers plotted graphs of stock prices and
analyzed the patterns of these charts according to their established rules. For
example, a "head and shoulders" formation indicated that a price had
peaked, dropped and then peaked again prior to falling off. This had
historically shown that price was peaking and the market or stock would plunge
in price or level. Other measures show market breadth, strength, trend and even
conviction. Due to their use of charts, these analysts were known as "chartists"
in days gone by. Now, computers have increased the ease and power of this form
of analysis and management. Most investment dealers employ a technical analyst
to provide market and stock commentary for their clients. |