What is technical analysis?

Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements and volume. Technical analysis is applicable to stocks, indices, commodities, futures or any tradable instrument where the price is influenced by the forces of supply and demand.

Unlike fundamental analysts, who attempt to evaluate a security's intrinsic value, technical analysts focus on charts of price movement and various analytical tools to evaluate a security's strength or weakness.

 

Technical Analysis

Technical analysis was formed out of basic concepts sourced from the Dow Theory, a theory about trading market movements that came from the early writings of Charles Dow.

Two basic assumptions of Dow Theory that underline all of technical analysis are:

  • market price discounts every factor that may influence a security's price
  • market price movements are not purely random but move in identifiable patterns and trends that repeat over time.

Anther important concept from the Dow Theory is about the explanation of trends in the market which can either be on the upside (bull market) or on the downside (bear market).

 

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