How does technical analysis work?

[Alexander Richards]

Hi, I would to inquire more about technical analysis.

[Rishabh Tyagi]

Technical analysis helps you understand the sentiment of stocks and provides insights into who is winning between buyers and sellers.

It is formed by traders' actions of buying or selling based off their perception of the company. TA helps us interpret that psychology of traders.

For example, if a stock falls from 160 to 100 and then reverses back to 160 after reaching the 100 level, by using the simple concept of support and resistance, we can anticipate a similar pattern to occur again.

To learn more, you can check out the articles; https://www.asktraders.com/learn-to-trade/technical-analysis/

[Fernando Cortez]

Hello, I would like to know how does technical analysis work?

[Alexander Richards]

Hello, thank you for asking! 

Technical analysis is a tool used by investors to analyze statistical trends gathered from trading activity, prices, and movements. Different from fundamental analysis which relies on studies of sales and earnings, technical analysis focuses on price and volume. 

Technical analysts seek to predict the price changes and changes in the value of stock according to the data gathered from supply and demand. This data helps generate short-term signals for trading, but also can act as an indicator of the strength of a specific stock.

Technical analysis can be used on any security with historical trading data. This includes stocks, futures, commodities, fixed-income, currencies, and other securities. Only commodities that have this data can be analyzed in the technical analysis due to the necessary input.

The goal of technical analysis is to make trading easier for investors, providing them with exact historical data, and giving predictions according to this data.
 

[Fernando Cortez]

Hi, thank you for asking! 

Technical analysis works by trying to detect market patterns, instead of trying to analyze security’s fundamental attributes. Professional analysts typically accept three general assumptions for the discipline:

The market discounts everything - Analysts believe that every asset and part of a single company is included in the price and affects it. This is called market psychology. The only thing remaining is the analysis of price movements, which technical analysts view as the product of supply and demand for a particular stock in the market.
Price moves in trends - Experts expect from prices to change without regard to the time frame observed, no matter how big or small the market is. Using this change, they can expect the future price movements of an asset, without any erratic movements. Most of the trading strategies are based on this assumption.
 History tends to repeat itself - Without exception, market movements are cyclic, meaning that they will surely repeat themselves, in some specific time. Technical analysis is used to predict when exactly will these price changes take place according to the historical data.