There are two major schools of thought among stock traders: one group strongly believes fundamental analysis is the only way to predict future price movements of a market instrument, while the second group is of the opinion that the best way is to use technical analysis.

The latter basically involves that you study past behavior in prices and trading volumes of a market instrument and then use that information to extrapolate future movements. The underlying assumption is that the past will repeat itself in the future, given the same set of circumstances. Proponents of fundamental analysis believe that this is not possible. Market conditions will never be exactly the same, so there is no way to use the past to predict the future.

You will find successful traders in both camps. This seems to indicate that both approaches could indeed work if applied consistently.

The tools of the technical analyst mostly consist of charts depicting variations in various technical indicators. There are a couple of chart types favored by different traders. A few of the most popular are: candlestick charts, line charts and OHLC charts (Open High Low Close).

The data that is presented graphically fall into a number of categories. Examples of these are trend indicators, momentum indicators, volatility indicators and volume indicators.

Some of the better known trend indicators are the numerous moving averages, Parabolic SAR and MACD. If you, like many traders, believe that you should always ‘trade with the trend’ these indicators will be of great help to you in determining when the market has moved into a trend.

Momentum indicators, such as RSI, basically try to determine when the market has become ‘overbought’ or ‘oversold’. When this happens, the price of that particular market instrument is likely to drop soon (overbought) or start rising (oversold).

Volatility indicators, such as the ATR (Average True Range), depict ‘normal’ price ranges graphically, so that a trader can easily see when the price breaks out of this normal range – which might indicate a major price movement.

Momentum indicators, a good example of which is the RSI, essentially try to determine when the market has reached an overbought or oversold position. If it’s overbought, prices are likely to start falling soon and vice versa.

Studying the various tools of technical analysis will not only help you to predict future market movements, but will also give you valuable insights into the mechanics of the marketplace.

For more from Mike Swanson get his free stock trading course at technical-analysis-charts.com.