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Technical Analyst

A specialist who is skilled in evaluating investments using past performance and technical indicators

What is a Technical Analyst?

A technical analyst is a professional with skills and relevant knowledge to explore the financial market and derive relevant temporal patterns that provide critical trading information. Technical analysts often work in brokerage houses, financial institutions, or in finance and investment agencies.

 

Technical Analyst

 

Although most technical analysts focus on only one or a few technical analysis aspects, some focus on multiple techniques and methods. Regardless, they carefully interpret past trading patterns and project future price movements using relevant technical indicators, such as strength index, Fibonacci retracement, Elliot waves, or other technical approaches.

 

Summary

  • A technical analyst is a specialist who is skilled in evaluating investments using past performance and technical indicators.
  • They use technical analysis and its indicators to extrapolate and predict price movements.
  • For a successful career as a technical analyst, an individual is required to possess at least a bachelor’s degree in finance or economics, mastery of technical analysis software, and a valid license.

 

Technical Analyst Explained

The financial market is highly volatile, and investors fall victim to placing large amounts of capital into stocks or fearful selling as market prices approach their final lows. Without technical knowledge, investors and traders tend to make investment decisions based on ill-timed media headlines or emotions.

Technical analysts come in as experts with technical analysis knowledge to help investors make informed investment choices by utilizing price movements and chart histories. The analysts use technical indicators as prediction tools that scan the stock market searching for significant hidden patterns. Thus, a technical analyst’s skills are used to discern the highest likelihood reactions to past and current trading patterns, as well as likely future price movements.

A technical analyst predicts future price movements in financial markets and high-probability potential trading opportunities. One of the primary tools that a technical analyst may use to confirm a hypothesis before taking action is a price chart. There are different types of charts that traders can use at any given time.

 

Job Description of a Technical Analyst

Integral to the success of a technical analyst is a solid understanding of finance and statistics. Therefore, they must hold a bachelor’s degree in finance, statistics, or other finance-related disciplines. With the availability of voluntary certification, market tacticians can find even better job opportunities.

 

Job Description

Technical analysis involves evaluating the market to predict future market performance. Analysts consider key statistics such as trading volume, price, interest rates, and trading rates when analyzing price movements. The information is then analyzed using software applications to determine the best time and price to sell or buy securities.

 

Job Requirements and Skills

At the minimum, a technical analyst requires a bachelor’s degree in finance or economics. They also need analytical skills and critical thinking skills to interpret past trading patterns carefully.

 

Certification and Licensing of Technical Analysts

For most technical analysts, a license is required depending on the state, organization, and specific duties. The main body tasked with issuing licenses to market technicians is the Financial Industry Regulatory Authority (FINRA).

For a technician to receive the FINRA license, they must be sponsored by the firm that employs them. Apart from FINRA, technical analysts may also receive market certification from other professional bodies such as the CFA Institute. To earn the CFA designation, a technical analyst must possess the required work experience and pass specific exams.

Chartists with expertise in investment risk and portfolio management qualify for a Chartered Market Technician (CMT), which is awarded by the CMT Association. The CMT Association is a non-profit professional body for investment professionals based in New York. Its core mandate is to improve investment performance and career opportunities for market technicians.

The association also provides other professional services, such as local, regional meetings, regular publication of newsletters, and seminars. It also holds an annual presentation program that gives the Charles H. Dow Award for high-performing technical analysts.

 

Tools for Technical Analysis

Technical analysts rely on technical analysis, which involves determining the factors that trigger price movement and how they affect future price movements. As traders, technical analysts also identify trading opportunities and make important investment decisions.

Technical analysis comprises a broad methodology that analysts use to identify trading opportunities. The methodology includes trade entries and exit, risk management, trade sizing, stop loss, and profit target placements.

Fundamental analysis is also a valuable tool for technical analysts and looks at how human behavior is manifested in price action. However, most analysts only focus on price as depicted on financial charts because they believe that all the required information is reflected in the price action and excludes consideration for fundamental analysis.

Technical analysts may also use software applications for fundamental analysis. Brokerage firms may offer such software applications, including comprehensive charting software, alongside after-sale services, such as featured charting patterns. Independent vendors also offer the programs, with an option to access a full range of charting patterns.

 

Learn More

CFI is the official provider of the Capital Markets & Securities Analyst (CMSA)® certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Advanced Technical Analysis
  • Portfolio Management Career Profile
  • Six Essential Skills of Master Traders
  • Volume of Trade

FMVA certification program

Advance your career in investment banking, private equity, FP&A, treasury, corporate development and other areas of corporate finance.

Get certified as a financial analyst with CFI’s FMVA® Program.