Technical Analysis is the method of forecasting future financial price movements based on an examination of past price data. Technical analysis does not try to assess a security intrinsic value, but instead uses charts and other tools to identify patterns that can predict what is likely to happen to prices over time. Technical analysis is applicable to stocks, forex, commodities, interest rates, bonds or any trad able instrument where the price is determined by the forces of demand and supply. Besides price, technical analysts also include volume and open interest data in their study of price action.
The Dow Theory, based on the collected writings of Dow Jones co-founder and editor Charles Dow, laid the foundations for what was later to become modern technical analysis. A fundamental principle of technical analysis is that all relevant information is already reflected by prices. Because market action discounts everything, analysts looks at the history of a security trading pattern rather than focus on external factors such as economic data or news events. Most technical analysts also agree that price trends directionally, i.e., up, down, or sideways. They argue that if price movements were totally random, it would be extremely difficult to make money using technical analysis. Another abiding principle of technical analysis is that investor behavior repeats itself over time, leading to the formation of recognizable (and predictable) price patterns on a chart, which allows a technician to select trades with a higher probability of success.
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