What is Technical Analysis?

Technical analysis uses historical price and volume data to predict future price movements of a security. This is different from fundamental analysis, which focuses on valuing a security based on its financial performance.

Technical analysis can be used to predict price movements of any security whose price is subject to the force of supply and demand. This includes stocks, options, bonds, commodities, etc.

The philosophies of technical analysis

Technical analysis is based on three notions:

• All information in the market is already reflected in the security price. Therefore, price should be the foundation of the analysis.
• Price tends to move in a noticeable trend and the trend tends to last for a period. If a trend appears, the price will possibly move in that direction.
• Past price movements tend to repeat in the future. This is because market psychology is predictable based on emotions like fear or excitement.

Technical Analysis Indicators

There are many tools that technical analysts use to spot trading opportunities. The purpose is to identify the current market trend, and determine the strength and duration of the trend. Common types of indicators are:

• Trendlines
• Chart patterns
• Support and resistance
• Volume and momentum indicators
• Moving averages
• Oscillators

We will explore more commonly used ones in our lessons later.