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Chapter 24 — What is Technical Analysis?
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What is Technical Analysis?

Technical analysis is a trading approach that attempts to predict the future movements of stock prices by examining the patterns and trends from past stock prices. Technical analysis is based on three main ideas: share prices move in patterns, these patterns repeat, and if you identify a pattern correctly then you will be able to profit from it. It is different from the fundamental analysis because technical analysis focuses on the psychology behind price movements and ignores the company performance, while fundamental analysis places a heavy emphasis on how the company’s performance affects future stock prices.

 

Technical analysis, like all trading strategies, is not a guaranteed way of making money. Some technical indicators will work, and some will not. Traders often attribute the success of their technical analysis trades to their knowledge of the technical indicators, ability to read charts, and their trading skill and discipline. Even when a trader has all of these characteristics, they can still lose money because of factors outside of their control, such as changes in market sentiment, macroeconomic changes, company fundamentals, or other unpredictable factors.

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