Technical Analyst

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 past market prices and technical indicators.

Technicians believe that short-term price movements are the result of supply and demand forces in the market for a given security. Thus, for technicians, the fundamentals of the security are less relevant than the current balance of buyers and sellers. Based on the careful interpretation of past trading patterns, technical analysts try to discern this balance with the aim of predicting future price movements.

Understanding Technical Analysts

Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities. It involves analyzing statistical trends gathered from trading activity, such as price movement and volume.

Unlike fundamental analysts, who attempt to evaluate a security's intrinsic value, technical analysts focus on patterns of price movements, trading signals, and various other analytical charting tools to evaluate a security's strength or weakness. Technical analysis utilizes price movements and chart histories to uncover trends and sentiment based on revealed market psychology.

Technical analysts have developed an extensive toolbox of analysis techniques and indicators. Typically, the use of one technical indicator does not provide enough information to make a trading decision; technicians use several indicators to confirm a hypothesis before taking action. There is no broad consensus on the best method of identifying 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 either buy-side or sell-side firms and, as of 2021, earn an average income of $87,750.

Technical analysts rely on technical analysis trading systems, which form the basis for their investment trades. Since many technical analysts are day traders, these systems are typically targeted at individual traders.

Chartists have a variety of options to choose from with many programs available through brokerages. Brokerages will often include comprehensive charting software with featured charting patterns in their service offering. Many advanced chartists, however, choose to obtain charting software from independent vendors in order to have access to the full range of available charting patterns.

Technical Analyst Certification and Licensing

Licensing is required for most technical analysts, although it will depend on the specific duties 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 firm that employs them.

Many technical analysts hold certifications from industry-recognized professional associations, such as the CFA Institute. To earn the Charted Financial Analyst designation from the institute, technical analysts must have relevant work experience and pass several 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 practitioners worldwide. It is issued by the CMT Association (formerly the MTA), a global credentialing 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, systematic approach to market behavior and the law of supply and demand. Earning the CMT demonstrates mastery of a core body of knowledge of investment risk in portfolio management; including quantitative approaches to market research and rules-based trading system design and testing.

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 may present their findings both internally and externally. For example, a technical analyst may present several tactical trading ideas at their investment firm’s morning meeting as well as giving a presentation at a client seminar.

Technical analysts may also work closely with fundamental analysts to compile research reports that provide comprehensive analysis for stocks that a brokerage firm covers.