Technical Analysis

Technical analysis is a study of forecasting price of financial securities by analysing the historical market data. Technical analysis employs models and trading rules based on price and volume, such as the relative strength index, moving averages, oscillators, or through recognition of chart patterns & waves. A technical analyst examines the price action of the financial markets instead of the fundamental factors that affect market price.

Technical analysis is based on three assumptions:

1. The market discounts everything:  It assumes that, at any given time, a stock’s price reflects everything that has or could affect the price - including the fundamental factors.

2. Price moves in trends: It is assumed that after a trend has been established, the future price movement is more likely to be in the same direction as of the trend than to be against it.

3. History tends to repeat itself: The repetitive nature of price movements is attributed to market psychology; i.e. market participants tend to provide a similar reaction to similar market stimuli over time.