The U.S. stock markets have been on a tear for the first two months of this year. So far in January and February of 2012, the annualized performance of the Dow Jones 30 Industrials is up by a third, the S&P 500 Index is up by a half, and the NASDAQ index is up an amazing 75%. All this action has been more or less straight up, which is amazing if you recall the disturbingly volatile year, 2011, that has just concluded when there seemed to be random moves up and down of 2% or 3% almost daily. Such activity reinforces the notion that one way to make (and possibly lose) money is to invest in stocks. This leads to the question how do people decide what to buy or sell when they decide they want to invest their money in equities.
Generally, there are two schools of thought on how to make these market decisions concerning what companies to buy or sell. One way is to look at the fundamentals of a company including such concrete accounting information like profit and loss or debt, as well as business expectations such as projected market share, projected market growth, industry expectations, etc. This approach to investing is called the fundamental approach, and people who use this type of analysis are called fundamentalists. The second approach to making investment decisions is called technical analysis. Technical analysts study price and volume charts along with other charts computed using calculations based on price and volume. The idea is that all the vital information concerning the prospects of a company are reflected in such charts, and buy and sell decisions can be made solely by studying such charts.
To read more about the justification and history of technical analysis, please check out my SimpleTalk article. It discusses the rationale behind technical analysis in a simplistic manner. Also, the origins of technical analysis from the late 1800s as well as the impact that personal computing innovations have had on the technical approach are discussed. Additionally, the article discusses how some of the price and volume indicators are computed and interpreted, showing charts of such indicators. As with most technically inspired disciplines, technical analysts have their own techno-speak with terms and shorthand like momentum, RSI, and MACD. The article also sheds some light their meanings.
Syncfusion is contributing to the computing support of technical analysis in its Essential Chart for WPF product. This product supports technical market analysis through its ChartTechnicalIndicator class. You can check out the use of technical indicators in the Chart Technical Indicator samples that are included in the free trial version of Syncfusion’s Essential Studio.