Technical analysis is the framework in which traders study price movement.
The theory is that a person can look at historical price movements and determine the current trading
conditions and potential price movement.
The main evidence for using technical analysis is that, theoretically, all current market information is
reflected in price. If price reflects all the information that is out there, then price action is all one would
really need to make a trade.
Now, have you ever heard the old adage, “History tends to repeat itself”?
Well, that’s basically what technical analysis is all about! If a price level held as a key support or
resistance in the past, traders will keep an eye out for it and base their trades around that historical price
Technical analysts look for similar patterns that have formed in the past, and will form trade ideas
believing that price will act the same way that it did before
In the world of trading, when someone says technical analysis, the first thing that comes to mind is a
chart. Technical analysts use charts because they are the easiest way to visualize historical data!
You can look at past data to help you spot trends and patterns which could help you find some great
What’s more is that with all the traders who rely on technical analysis out there, these price patterns and
indicator signals tend to become self-fulfilling.
As more and more traders look for certain price levels and chart patterns, the more likely that these
patterns will manifest themselves in the markets.
You should know though that technical analysis is VERY subjective.
Just because Ralph and Joseph are looking at the exact same chart setup or indicators doesn’t mean that
they will come up with the same idea of where price may be headed.
The important thing is that you understand the concepts under technical analysis so you won’t get
nosebleeds whenever somebody starts talking about Fibonacci, Bollinger bands, or pivot points.