Technical Analyst

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21 Aug, 2024

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A technical analyst is a professional who employs technical analysis methodology to determine securities' current and future prices. They primarily use past market data and technical indicators.

The fine performance of technical analysts depends on their expertise, experience, and the availability of quality technical data. For example, good stock picking requires being able to recognize when a trend is changing and how strong it is and recognizing the trend and its characteristics require expertise and historical data.

What Is A Technical Analyst?

A technical analyst is a specialist using historical data collected throughout their research and technical indicators to predict the future values of assets.
Most of them work for financial institutions such as brokerage houses and investment companies.
They focus on the business's technical aspects. On the other hand, business analysts focus on the general structure of the business.
They examine various data sources to produce coherent reports and forecasts. Their most important skill is critical thinking and expertise in using technical indicators.

Technical Analyst Explained

Technical analysts' services are an important element in professional trading. Most of them are traders who forecast the market prices for securities based on historical data analysis. In addition, entities like brokerage houses and investment companies employ technical analysts.

The volatile nature and other risk elements intrinsic to the financial market point to the importance of following the right approach in investment processes. Analysts use their expertise and knowledge to help investors make appropriate investment decisions promptly.

Their methods are different from fundamental analysts. They use technical indicators to derive patterns and signals from analyzing price and volume to make informed decisions. In other words, technical indicators are applied to forecast future price movements based on historical data. Fundamental analysts' focus is primarily on the intrinsic value of the stocks. It involves the analysis of financial statements, the company's health and competitors, the overall state of the economy, and GDP.

The price chart is a simple example of a tool used by technical analysts to draw a conclusion on the future price patterns of the security. However, since there is no definitive approach to determining the best prices of the securities in the near future, technical analysts may gradually develop their method of approaching, analyzing, and interpreting the price movements based on skill and experience.

Let us look at the following Dow Jones Industrial Average chart to get a basic idea of price charts and indicators.

Source

In the above chart, the blue line represents the 200-day simple moving average, which is a popular technical analysis indicator utilized by traders. Individuals can use this tool to determine the market trend. The calculation of a simple moving average involves summing up every data point during a certain period and dividing that result by the overall time periods.

When the price falls below the moving average, it is an indication of a potential downward trend. On the other hand, when the price rises above the line, a bullish trend might be on the horizon.

For instance, as we can observe in the above chart, as the Dow Jones index dropped below the 200-day moving average line on February 11, 2022, a downtrend materialized. That said, individuals ensure to utilize this indicator with other indicators and chart patterns to maximize the chances of success.

Also, to find similar charts that can help in better understanding technical analysis indicators, one may choose to visit the official TradingView platform.

Requirements

The requirements to become a technical analyst are as follows:

Acquiring a bachelor's degree in a relevant field like economics, accounts, and finance is the top priority.
Most technical analysts and other securities professionals' licenses are governed by the Financial Industry Regulatory Authority (FINRA).
Many technical analysts obtain certifications from international or not-for-profit professional organizations like CFA institutes and any licensing requirements. A Chartered Financial Analyst (CFA) charter is a title awarded to persons who have completed the CFA Program and met the necessary acceptable work experience requirements.
They analyze various data sources to provide coherent reports and predictions. Critical thinking is the most important professional soft skill for the technical analyst.
Technical analysts frequently must convey their results in official reports and meetings. Hence they must have excellent written and verbal communication skills.

Role

The roles of the technical analyst include the following:

In an organization, they are accountable for various tasks. The obligations pertain to communicating technical knowledge. A technical analyst is someone who should have the research and interviewing skills to gather information from a broad range of sources.
They should conduct market research and data collection on businesses to enhance their skills.
Analyzing the data market research results is one of the most important tasks. They must draw conclusions and patterns from the data to attain the results.
They are responsible for researching prospective investment alternatives, forecasting possible investment returns, and assessing the stock market.
They also use their knowledge to assist business executives in choosing the best investments for the company's growth or security.

Salary

According to a report published by Glassdoor in December 2022, the average salary for a Technical Analyst is $73,081 per year in the US. Along with basic pay, many receive bonus payments, medical insurance, pension benefits, stocks, remote working options, and future sabbaticals.

Technical Analyst vs Business Analyst

Business analysts focus on business functions and processes, and they execute the business analysis. At the same time, technical analysts focus on technical methods to extract technical solutions essential for the business.

The difference between the technical and business analyst based on their role in business organizations are as follows:

Technical Analyst	Business Analyst
Works on technical aspects of the business or investment.	Business analysts work on the overall aspect of the business.
They are responsible for analyzing the technical information and aligning it with the business or investment strategies to meet the end goals and objectives.	They are responsible for interpreting the data and coming up with solutions to ensure the consistent growth of the business.
Apply critical thinking to analyze the problems.	Primarily use analytical skills and knowledge to solve problems.
Uses technical analysis tools and software Examples: Trend lines, and RSI (Relative Strength Index)	Uses business analytics tools and software Examples: Excel, SAS, and Tableau

Frequently Asked Questions (FAQs)

Why are technical analysts important?

Technical analysts perform technical analysis, which is important to predict the price direction, trend changes, etc. For performing technical analysis, organizations require certified or experienced professionals proficient in using various statistical tools, patterns, trendlines, and other indicators to make an efficient and effective investment decision.

What are the common indicators used by technical analysts?

Common indicators involve trend lines, support and resistance levels, moving averages, trading volume, chart patterns, candlesticks, and fractals.

What are technical analyst responsibilities?

They are responsible for analyzing the technical information and aligning it with the strategies of the businesses to meet the end goals and objectives. They use their skills to help investors and businesses make informed investments or market decisions. To predict future price movements, they look at historical chart data, price changes, and technical indicators like Elliott Waves, Fibonacci Sequences, Strength Index, and other tools.