Technical analysis is the art of interpreting chart patterns for the purpose of forecasting future price trends while the opposite, fundamental analysis, involves the business of analyzing a stock's income statements, balance sheets, cash flows, earnings growth, and what the management says in order to predict where shares would go in the future.

Although both these areas are valid in their own domain for stock predictions, we will attempt to show you why technical analysis with chart patterns is superior for trading. We will also get into why a combination of both these doctrines are needed for our high powered swing trading system but for now, we will talk about technical analysis and how certain particular studies in chart patterns apply more to us than others.

There are many ways to draw lines and create oscillators in a price chart and most are listed in many good books that we will not discuss here. Explanations for Japanese Candlesticks, On-Balance-Volume (OBV), Stochastics, MACD, William's %R, Point and Figure Charts, Gann Angles, etc., are all readily found through our bookstore or on the web on technical analysis. We use a specific set of technical tools tailored for our needs and the development of our swing trading system.

The first thing we need to know about technical analysis how to draw trendlines in chart patterns. Illustrated below is how horizonal trendlines as well as diagonal ones usually create a boundary and/or trend channel allowing a trader to see exactly where the main trend lies. Most of these lines either support prices so that all the prices are above this line or give resistance which is when the prices are below the line. A break above or below these lines will constitute either a "breakout" or "breakdown" of the prevailing trend respectively. In other words, if we had a map but didn't draw in a line showing how to get from one city to another, the map is not as good as the one that highlights the shortest direction in both miles and traveling time. Mapquest does this so well and that is why most people use them to navigate to new places. Our "maps" or chart patterns will be your guide and will make the understanding of technical analysis a better trading tool!

So similar for stocks, a normal price chart without anything drawn on it is analogous to trading with a blindfold on. Depicted below are three charts, one with no trendlines drawn in and the other two all "mapped" out, depicting a pattern in the chart. Do you notice the large difference and would our "mapped" out chart make you a better swing trader?

Noted with the NDX.X chart pattern below is that the fusia-colored trend channel lines has contained all the highs and lows of the rally from August 2007 till November 2007. And if the trendlines are not drawn in, would you have known where each selloff or rally would have ended?

In summary, there are many facets to technical analysis. Alot of them are valid and could interpret price movement. But here at daytrader1.com, our swing trading methods illustrate both the buy point as well as the sell point even before the trade is executed. In this manner, the astute trader could then calculate the "risk and return" before the trade is consummated to see if the effort would be worthwhile. Our free "daily insights" on the homepage will teach our special methods of technical analysis because of the consistency to each and every chart pattern. Your "learning curve" will be greatly improved as many examples over time would solidify your knowledge on how we "map" out our chart patterns, stock selections and trades.