Basic Assumptions of Technical Analysis
Technical Analysis consists of a number of Methods used for evaluating all marketable Products (Securities, Currencies, Commodities, etcâ€¦) by analyzing the statistics generated by market activity, such as past prices and volume. Technical Analysts do take into consideration the Productâ€™s intrinsic value, but they use charts and other tools to identify Trends and Patterns that can suggest the exact timing for an entry and for an exit.
Just as there are many investment styles on the Fundamental side, there are also many different types of Technical Traders. Some rely on chart patterns, others use technical indicators and oscillators, and most successful ones use some combination of the two, plus the Fundamental Analysis as a real support confirming their analysis. In any case, Technical Analysts use and study the historical Price and Volume data, which mainly differentiates them from their Fundamental counterparts. Technical Analysts care a lot about a Productâ€™s past trading data (Price History) and what information this data can provide for its future direction.
The field of technical analysis is based on three assumptions:
• The Market Discounts Everything
• The Price Moves in Trends
• History Tends To Repeat Itself