What is Technical Analysis?
Technical analysis is the study of historical price and volume data to predict future price movements, using charts, indicators, and patterns rather than fundamental company data.
Technical Analysis Explained
Technical analysis operates on three principles: price discounts everything, prices move in trends, and history repeats. Technicians believe all known information is already reflected in the price, so analyzing price action is sufficient for making trading decisions. Common tools include moving averages, RSI, MACD, and chart patterns. Critics argue it's no better than random, but millions of traders use it successfully as part of their decision-making process.
Real-World Example
A technician looks at a chart and sees: stock above its 200-day moving average (long-term uptrend), RSI at 45 (not overbought), price at support of an ascending channel, and volume declining during a pullback. This confluence of technical factors suggests a buying opportunity.
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