What is Technical analysis?

 

Technical analysis is an approach to evaluate and predict future price movements of securities by examining past market data, particularly price and volume. It operates on the premise that historical trading activity and price changes can be valuable indicators of future price trends.

Proponents of technical analysis trust that patterns and trends observed in market charts can signal future price behaviors. They employ a range of methods and instruments to scrutinize the market and pinpoint potential trades.

A key element of technical analysis is the application of technical indicators—mathematical formulas derived from market data like price and volume, aimed at predicting upcoming price shifts. Popular technical indicators encompass moving averages, the Relative Strength Index (RSI), and the stochastic oscillator.

Additionally, technical analysts utilize chart patterns to anticipate price directions. These formations, including the head and shoulders and triangles, emerge from a security's price movements and can signal opportunities for buying or selling.