Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts believe that the historical performance of a security, as represented by charts and other tools, can be used to predict its future performance.
The main idea behind technical analysis is that market trends, as shown by charts, tend to repeat themselves. Technical analysts use charts to identify patterns and trends that can be used to predict future market activity.
Technical analysts use a variety of tools and techniques to analyze the market, including trend lines, moving averages, and various technical indicators such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD). These tools and techniques are used to identify trends, support and resistance levels, and potential entry and exit points for trades.
Technical analysis also includes the study of chart patterns, such as head and shoulders, triangles, and wedges, which can provide information about the direction and duration of a trend.
It’s important to note that technical analysis is not a perfect method and it’s not suitable for all investors. Technical analysis is based on the assumption that markets are driven by emotions and that past market trends and patterns will continue to repeat themselves in the future. However, market conditions can change and new information can affect the performance of a security. Technical analysis should be used in conjunction with other forms of analysis, such as fundamental analysis, to get a better understanding of the market.
