Technical analysis is an analysis discipline used for forecasting the direction of prices through the study of past market data, primarily price and volume.
The principles of technical analysis are derived from hundreds of years of financial markets data. Some aspects of technical analysis began to appear in Joseph de la Vega's accounts of the Dutch markets in the 17th century. In Asia, technical analysis is said to be a method developed by Homma Munehisa during early 18th century which evolved into the use of candlestick techniques, and is today a technical analysis charting tool. Early technical analysis was almost exclusively the analysis of charts, because the processing power of computers was not available for statistical analysis.
While fundamental analysts examine earnings, dividends, new products, research and the like, technical analysts examine what investors fear or think about those developments and whether or not investors have the wherewithal to back up their opinions; these two concepts are called psych (psychology) and supply/demand. Technicians employ many techniques, one of which is the use of charts. Using charts, technical analysts seek to identify price patterns and market trends in financial markets and attempt to exploit those patterns. Technicians use various methods and tools, the study of price charts is but one.
There are many techniques in technical analysis. Some technical analysts use subjective judgment to decide which pattern(s) a particular instrument reflects at a given time and what the interpretation of that pattern should be. Others employ a strictly mechanical or systematic approach to pattern identification and interpretation.
Technical analysis is widely used among traders and financial professionals and is very often used by active day traders, market makers and pit traders. In the foreign exchange markets, its use may be more widespread than fundamental analysis. This does not mean technical analysis is more applicable to foreign markets, but that technical analysis is more recognized as to its efficacy there than elsewhere.
Join us at our next meet up where we will cover Technical Analysis, expect a general understanding presentation followed by charts analyzed by a professional trader.