Technical analysis

Technical analysis refers to methods that aim to forecast prices of securities in financial markets using charts or quantitative techniques. It seeks to identify and exploit price trends in financial markets.

Related Topics:
Forecast - Securities - Financial market - Trend

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Technical analysis is less concerned with why a price is moving (poor earnings, difficult business environment, poor management, etc. or other fundamentals) than it is on the fact that the price is consistently moving in a particular direction. To a technician, profits can be made in any market by positioning yourself in the direction of the price trend. If the price trend is up, then look for opportunities to buy, if the price trend is down, then look for opportunities to sell.

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The premises of technical analysis were derived from empirical observations of financial markets. Dow Theory is generally regarded as the foundation of technical analysis. Many academic studies of financial markets suggest that technical analysis has little worthwhile predictive power. Still, technical analysis has a loyal and dedicated following especially amongst active traders who defend the practice and believe it can be proftable and there are some scientific studies that support technical analysis.

Related Topics:
Dow Theory - Predictive power

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Applicable to any market with a comprehensive price history, technical analysis does not try to analyze the financial data of a company, such as cashflow, dividends, and projection of future dividends. Because of this lack of fundamental analysis, technical analysis is sometimes derided by critics as having no predictive qualities.

Related Topics:
Market - Cashflow - Dividends - Fundamental analysis

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