Understanding of Technical Analysis

Technical analysis is a tool, or method, used to predict the probable future price movement of a security – such as a stock or currency pair – based on past market data, primarily price and volume, to forecast future price movements. It's based on the belief that all relevant information is already reflected in the price, and the Past Price is the most reliable indicator of Future Performance."

Technical analysis method originated with Charles Dow in the late 19th century at the beginning and has evolved significantly over the years. Nowadays technical analysis has evolved to include hundreds of patterns and signals developed through years of research. The main theory behind the validity of technical analysis is that price movement shows the full activity of traders and investors in the market, as demand, supply, orders, and volume are the main market drivers.

Therefore, unlike fundamental analysis, which attempts to evaluate a security's value based on earnings results management, plans, etc, technical analysis focuses on the study of price and volume. Thus, sometimes technical analysis could be contrasted with fundamental analysis.

In technical analysis, tools and charts are very important. Different indicators in different charts help us scrutinize how supply and demand for security will affect price, volume, and implied volatility changes.

Many traders and investors believe in the accuracy of technical analysis, but we mostly use that among fundamental analysis. Still, it is usually used in short-term trades. But can also help fundamental analysis to evaluate the security's strength or weakness relative to the broader market or one of its sectors. This information helps analysts and traders improve their overall valuation estimates to find the best entry and exit levels.

History of Technical Analysis

To enhance and broaden our understanding, let's review the history and development of technical analysis together. The history of technical analysis spans several centuries and has evolved significantly over time. Here is an overview of the key milestones in the development of technical analysis: