An Introduction to Technical analysis

So we’ve come the point when the question arises: What is technical analysis?

Technical analysis is the study of market action through the use of charts, in order to forecast future price trends. Market action includes: price, volume and open interest. Technical analysis can be used for short-term, medium-term and long-term trading. Technical analysts develop trading rules and trading systems by using various theories, charting tools, and indicators. Once mastered, Technical analysis can be used on all trading instruments and in various timeframes including short term, medium term and long term basis.

Technical analysts in order to perform this analysis actually have developed trading rules and trading systems by using various tolls and indicators.

The three main principles of technical analysis are the following:

• The market discounts everything, that means that the market moves ahead of an event based on its expectations
• Price moves in trends and that would mean that the market’s movement could be summed up in certain directions
• History tends to repeat itself allowing for certain patterns to be repeated through time

Technical analysis is also being split into two categories. The first is charting analysis where Bar charts, Candle charts, Trend lines, Channels, Support and resistance levels, Chart patterns and gaps are being used. Overall the charting analysis is performed by analyzing what information the is directly provided by the price action. The second is part is mechanical analysis where moving averages, oscillators, envelops and bands as well as other technical indicators are being used to understand the price action. Practically technical analysis compliments charting analysis with the latter being the basis.