Technical analysis

Technical analysis

What are the principles of technical analysis?

Technical analysis (TA) is a method of evaluating and analysing securities in order to make trading or investment decisions.

TA attempts to determine the behaviour of the price action in the future, based on what has happened in the past.

A fundamental principle of TA is that the price reflects all relevant information. Thus, fundamental data about the security does not need to be included into the analysis.

Usually, in TA price charts are analysed with the help of various tools such as indicators, oscillators, trend lines, or looking for reoccurring patterns. Each of these tools processes and displays information about the price movement or estimated future price movement in a different way.

Learning technical analysis

Independent of whether you trade stocks, forex or any other asset class, technical analysis contains many important tools.

Our learning modules and lessons on technical analysis, indicators and chart analysis:

Subject
From Japanese candlesticks to the Fibonacci indicator, technical analysis is the mathematical approach to trading.

If you are new to trading, we recommend that you try our forex beginner strategy that is based on some of the key concepts in TA:

Principles of technical analysis

The market discounts everything. Whatever happens to a security is considered by the market. Even though TA mostly ignores fundamentals, the market will still price those in and thus reflect everything that has or could influence the security.

The price moves in trends. Price movement is considered to always follow a certain trend. The old saying “the trend is your friend” means it is easier to trade with the trend. Most strategies and tools actually focus on trends, whether short term or long term. Price can be in an uptrend, downtrend or sideways trend, which is also called ranging.

What happened before, will happen again. Like history, price movements tend to repeat themselves. TA uses historical data to determine future movement. Market participants tend to react in a similar way to certain events or appearances, so they can usually be expected to react in the same way again when a similar situation occurs in the future.

Discuss technical analysis

If you have any questions left or want to discuss any aspect on TA, we recommend that you visit our dedicated forum:

More on technical analysis:

Subject
From Japanese candlesticks to the Fibonacci indicator, technical analysis is the mathematical approach to trading.

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