What is a technical analyst?
A technical analyst, also known as a chartist or market technician, is a securities researcher or trader who analyzes investments based on previous market prices and technical indicators.
Technicians believe that short-term price movements are the result of the forces of supply and demand in the market for a given security. Therefore, for technicians, the fundamentals of security are less relevant than the current balance of buyers and sellers. Based on careful interpretation of past trading patterns, technical analysts attempt to discern this equilibrium in order to predict future price movements.
- Technical analysts, also known as chartists or technicians, employ technical analysis in their trading and research.
- Technical analysis looks for price patterns and trends based on historical performance to identify signals based on sentiment and market psychology.
- Technical analysts can enhance their training and education by earning the professional Chartered Market Technician (CMT) designation.
Understanding of technical analysts
Technical analysis is a business discipline used to evaluate investments and identify business opportunities. It involves analyzing statistical trends collected from trading activity, such as price movement and volume.
Unlike fundamental analysts, who attempt to assess the intrinsic value of a security, technical analysts focus on price movement patterns, trading signals, and other analytical charting tools to assess the strength or weakness of a security. Technical analysis uses price movements and chart history to uncover trends and sentiments based on revealed market psychology.
Technical analysts have developed a comprehensive toolbox of analysis techniques and indicators. Normally, the use of a technical indicator does not provide enough information to make a trading decision; Technicians use various indicators to confirm a hypothesis before acting. There is no broad consensus on the best method to identify future price movements, so most technicians gradually develop their own set of trading rules based on their knowledge and experience.
Technical analysts can work in buy-side or sell-side companies and, as of 2021, earn an average income of $ 87,750.
Technical analysts rely on commercial technical analysis systems, which form the foundation of their investment operations. Since many technical analysts are intraday traders, these systems are usually aimed at individual traders.
Chartists have a variety of options to choose from with many programs available through brokerages. Brokers will often include full charting software with featured chart patterns in their service offering. However, many advanced chartists choose to obtain charting software from independent vendors to gain access to the full range of chart patterns available.
Certification and Licensing of Technical Analysts
Licensing is required for most technical analysts, although it will depend on the specific roles they perform, the organization they work for, and the state in which they reside. The Financial Industry Regulatory Authority (FINRA) issues licenses to technicians who are sponsored by the company that employs them.
Many technical analysts hold certifications from recognized industry professional associations, such as the CFA Institute. To earn the institute’s Registered Financial Analyst designation, technical analysts must have relevant work experience and pass various exams. Other prominent associations that technical analysts may belong to include the American Association of Professional Technical Analysts and the International Federation of Technical Analysts.
The Chartered Market Technician (CMT) designation marks the highest level of training within the discipline and is the preeminent designation for professionals around the world. Issued by the CMT Association (formerly MTA), a global accreditation body with nearly 50 years of service to the financial industry.
Technical analysis provides the tools to successfully navigate the gap between intrinsic value and market price across all asset classes through a disciplined and systematic approach to market behavior and the law of supply and demand. Obtaining the CMT demonstrates mastery of a basic body of knowledge about investment risk in portfolio management; including quantitative approaches to market research and the design and testing of rules-based trading systems.
Technical Analyst Job Responsibilities
A technical analyst observes and interprets the price action of a security to make predictions about its future direction. They apply this price data to statistical formulas to determine probable outcomes.
Technicians can present their findings both internally and externally. For example, a technical analyst may present several tactical business ideas at his investment firm’s morning meeting, as well as give a presentation at a client seminar.
Technical analysts can also work closely with fundamental analysts to compile research reports that provide a comprehensive analysis of the stocks that a brokerage firm covers.