The term technical analysis refers to a forecasting methodology that attempts to predict future price movement based on historical price patterns. Technical analysts will examine a security's past prices, trading volumes, open interest, as well as short selling when predicting future price direction.
Technical analysis is used by investors to predict future price movements of a security. The information analyzed by the investor includes historical trading trends, price volatility, and trading volumes. While a fundamental analyst will examine data like a company's balance sheet, income statement and financial ratios; the focus of a technical analyst is historical trends. Some of the basic tenets of technical analysis include:
Historical trading volumes and prices can be used to predict future price movement.
Price changes are not random, and by examining historical long and short term trends, investors can predict, and profit from, current trends.
Current prices reflect all underlying fundamental information; therefore, technical analysis should be used to predict future prices.
Prices will tend to trend up, down, or flat over time.
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