Technical Analysis

Technical analysis is a method of assessing securities by means of analyzing statistics made by activity in a market, such as past prices and volume. A technical analyst does not measure a security’s intrinsic value. For them to identify such patterns that can suggest an activity in the future, they are using charts and certain tools.

In fundamental analysis, there are various ways in investing, so does in the technical side. Some traders are depending on chart patterns, while other use technical indicators and oscillators, and most of them are using the combination of the two.

Furthermore, what makes technical analysts different from a fundamental is the exclusive use of historical price and volume data. If a stock is undervalued, this matters to a technical analyst but, a fundamental analyst doesn’t even care about this. However, the only thing that is considered is a security’s past trading data and what information data can be provided regarding the possible movement of the security in the future.

Technical analysis three assumptions:
1. The Market Discounts Everything 
2. Price Moves in Trends 
3. History Tends To Repeat Itself 

1. The Market Discounts Everything 

Technical analysis is mostly criticized because it tends to ignore fundamental factors of the firm and only considers the movement of the price. On the other hand, technical analysis expects a stock’s price to reflect on everything that leads an impact on the company at any given time including fundamental factors.

Technical analysts believe that the fundamental factors of a firm, together with its broader economic aspects and market psychology, are all priced into the stock. It actually sets aside the need to consider such factors independently. Therefore, the price movement analysis is being left, in which it is viewed by technical theory as a supply and demand product in a certain stock in the market.

2. Price Moves in Trends 

In technical analysis, the movements of the price are considered to follow trends. It suggests that an established trend sets the future price movement to position in the same direction of the trend instead of moving in opposite directions. Most of the technical trading techniques are only based on such assumptions.

3. History Tends To Repeat Itself 

In terms of the movements of the price, another thing is important in technical analysis. It is the idea that history tends to repeat itself. The repetition of the price movement is recognized to market psychology. Basically, participants in the market are giving a consistent reaction to the same market stimuli over time. In order to analyze certain market movements and to further understand trends, technical analysts are using chart patterns. In spite of the fact that these charts have been used for over 100 years already, many still believed that they are important for they illustrate patterns of the price movements that frequently repeat themselves.

Get market insights with our best forex broker. Open a live account at today and check out our market news updates in Trade12reviews to execute better trades!