Basic principles of technical analysis

What is technical analysis?

Technical analysis is the study of prices and volumes to predict future stock price movements or financial prices. Technical analysis does not result in absolute predictions about the future. Instead, technical analysis can help investors predict what will happen to prices over time.

Technical analysis is not an exact science. It’s an art and needs quite a bit of experience. Not all studies do the same for every instrument being traded. One study can give great signals for buying and selling, while another may not work for you at all.

Basic principles of technical stock market analysis

Technical analysis is based on these three basic principles:

Discount on prices All

Prices are moving in trend

History repeats itself

# 1- Discount on prices All

Technical analysts believe that the current price fully reflects all the information. Since all information is already reflected in the price, it represents fair value and should form the basis for analysis. Finally, the market price reflects the sum of the knowledge of all participants, including traders, and …

Stock market technical analysis uses price-recorded information to interpret what the market is saying in order to create a view of the future.

# 2- Prices are moving in trends

Technical analysts or graphic designers believe that profits can be made by following trends. In other words, if the price has risen, they expect it to continue to rise; if the price has dropped, they expect it to continue to fall. However, most technicians also acknowledge that there are periods when prices are not moving in trend.

# 3- History repeats itself

Technical analysts believe that investors repeat their behavior and assume that useful information is hidden within the price history; that it is a way of analyzing the past actions of people in a particular market which is reflected in their actual transactions.