Education

Technical Analysis

 

"Technical analysis is the study of past financial market data, primarily through the use of charts, to forecast price trends and make investment decisions"

There are three basic principles when dealing with technical analysis

 

 

Markets discount everything.

The purpose of technical analysis is to analyze and interpret the signals generated from the market due to the price action. It's said by the technical analysts that because all relevant information is already reflected by the prices, it turns to be a double job to do fundamental analysis, this mean that the technical analyst is only concerned with price movements and not the reasons for any change.

Prices move in trend

Technical analysis relies on evidence to show that prices trend. Technicians say that markets trend up, down, or sideways (flat). They don't believe that price oscillations are random or unpredictable.
Technicians often says that after a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it. Most technical trading strategies are based on this assumption.

History tends to repeat itself

The repetitive nature of price movements is attributed to market psychology; in other words, market participants tend to provide a consistent reaction to similar market stimuli over time. Technical analysis uses chart patterns to analyze market movements and understand trends. Although many of these charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves.