Technical trading

Technical trading is a broader style that is not necessarily limited to trading. Generally, a technician uses historical patterns of trading data to predict what might happen to stocks in the future. This is the same method practiced by economists and meteorologists: looking to the past for insight into the future. However, we all know how poor forecasts can be.

The challenge of technical analysis is that there are literally hundreds of technical indicators available, and there is no single indicator that is considered universally better than each particular indicator or group of indicators, that may be applicable only to specific circumstances.

Some technical indicators may be useful for certain industries, others only for stocks of a certain classification (for example, stocks within a certain range of liquidity or market capitalization). Because of the unique patterns that highly traded stocks might exhibit throughout history, some indicators may be relevant only to certain individual stocks.

Technical indicators, like momentum indicators, are not a silver bullet for deciding when to buy or sell. They are poor predictors of precise timing, but they are good at indicating which stocks are candidates for further analysis with such detailed data as the Level 2 screen. As such, technical analysis can be viewed as a starting point—the historical patterns do not necessarily translate into an exact picture of future performance.