Technical analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends.Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements. Like weather forecasting, technical analysis does not result in absolute predictions about the future. Instead, technical analysis can help investors anticipate what is "likely" to happen to prices over time. Technical analysis uses a wide variety of charts that show price over time.
A technical analyst will study the price and volume movements and from that data create charts (derived from the actions of the market players) to use as his primary tool. The technical analyst is not much concerned with any of the "bigger picture" factors affecting the market, as is the fundamental analyst, but concentrates on the activity of that instrument's market.
Technical analysis is based on three underlying principles:
1. Market action discounts everything: This means that the actual price is a reflection of everything that is known to the market that could affect it, for example, supply and demand, political factors and market sentiment. The pure technical analyst is only concerned with price movements, not with the reasons for any changes.
2. Prices move in trends: Technical analysis is used to identify patterns of market behavior which have long been recognized as significant. For many given patterns there is a high probability that they will produce the expected results. Also there are recognized patterns which repeat themselves on a consistent basis.
3. History repeats itself: Chart patterns have been recognized and categorized for over 100 years and the manner in which many patterns are repeated leads to the conclusion that human psychology changes little with time.
Have A Happy Trading........:smiley:
