Technical analysis

DEFINITION of technical analysis

Technical analysis is a way to examine and predict price movements in the financial markets, by using historical price charts and market statistics.

WHAT IT IS IN ESSENCE

The idea behind is that the traders are able to identify previous market patterns.  Hence, they can form an adequate prediction of future price course.

It is one of the two major schools of market analysis. The other is fundamental analysis.

Fundamental analysis focuses are on the asset’s ‘true value’, pointing to external factors and intrinsic value.

Technical analysis is based absolutely on the price charts of an asset. It is completely the identification of patterns on a chart that they use to predict future movements.

Technical traders analyze price charts to attempt to predict price movement. There are two primary variables for technical analysis.

  • the time frames.
  • the particular technical indicators that a trader chooses to utilize.

Technical traders believe that current or past price action in the market is the most reliable indicator of future price action.

Not only technical traders use technical analysis.

Many fundamental traders use fundamental analysis to determine whether to buy into a market.

But when they make that decision, they use technical analysis to pinpoint good, low-risk buy entry price levels.

In simple words, technical analysis means, an analysis to extrapolate the future by interpreting the past and the present.

With a basic assumption that history repeats itself.

HOW TO USE

Technical analysts believe that all current market variables are reflected via the price movement or price action on a price chart.

So,  say we believe that all market variables are the reflection of price movement. Then it only goes to reason that we don’t really need much else to analyze. And trade the markets besides price.

Technical analysts prefer it because they adopt the idea that all market variables are reflected via price action.

So they see no reason to use other means to analyze or trade the market.