What is Technical Analysis?

The term technical analysis refers to a trading discipline that is used to find and identify trading opportunities as well as evaluate investment opportunities. Technical analysis signals are generated by analyzing statistical trends gathered from trading activities such as price movement vis-à-vis volumes traded. Unlike fundamental analysis which involves evaluating the intrinsic value of a security, technical analysis focuses on the patterns generated by price movements in the market and factors in a range of analytical charting tools to evaluate the strength or weakness of an asset’s movements.

Any asset or security with historical data can be technically analyzed. These include cryptocurrencies, commodities, futures, stocks, traditional currencies, fixed-income, and other types of securities.

Technical analysts take comfort in the fact that all market variables are factored in the price action of a security. This system relies heavily on price data to analyze trades first, then factor in fundamental events such as news and natural variables that influence the price action of an asset. The underlying logic of technical analysis is that human factors that have a direct impact on the market tend to be repetitive since emotions, which are very predictable mostly shape their interaction with the market.

Why is technical analysis important to traders? Well, there is a saying that history repeats itself. With special algorithms that analyze events, traders can be able to predict the future of a security market based on the analysis of the past market performance as a whole or for a specific stock, asset, or security. Successful traders are those investors who find the most dependable source of technical analysis signals that point them to making the right investment decision.