What is technical analysis?

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Technical analysis is a method used to evaluate financial assets, such as stocks, currencies, or commodities, by analyzing historical market data, primarily focusing on price and volume patterns. Unlike fundamental analysis, which examines the underlying factors of an asset, technical analysis relies on charts and statistical tools to forecast future price movements based on historical price data.

Key elements of technical analysis include:

Price Charts: Technical analysts use various types of charts, such as line charts, bar charts, and candlestick charts, to visualize and analyze historical price movements of an asset over time.
Technical Indicators: These are mathematical calculations applied to price and volume data. Examples include moving averages, relative strength index (RSI), MACD (Moving Average Convergence Divergence), and Bollinger Bands, among others. These indicators help identify trends, momentum, volatility, and potential buy or sell signals.
Chart Patterns: Analysts study recurring patterns in price charts, such as head and shoulders, triangles, flags, and support/resistance levels. These patterns are believed to indicate potential future price movements.
Volume Analysis: Examination of trading volume data to gauge the strength or weakness of price trends. Volume can confirm or contradict the significance of price movements.
Trend Analysis: Identification of trends in price movements, including uptrends, downtrends, and sideways movements. Technical analysts aim to follow or predict these trends to make trading decisions.
Technical analysts believe that historical price data contains information about market psychology and that price patterns tend to repeat themselves. They use this information to make predictions about future price movements and to time their buying or selling decisions.