Technical Analysis

Technical analysis reads the historical record of price and volume itself — trends, patterns and momentum — without modelling the underlying business or its fundamentals.

Whereas fundamental analysis values a company by looking at its earnings, balance sheet and competitive position, technical analysis works one level removed. It asks a narrower question: given the way price has behaved so far, what is it likely to do next? The answer comes from the chart itself rather than from financial statements.

Two broad toolkits do most of the work. Chart-pattern recognition looks for repeated geometric shapes that price traces over time — wedges, channels, head-and-shoulders, double tops and the like — and trades the moments when those shapes resolve. Statistical indicators reduce price and volume to a single derived series (moving averages, oscillators, momentum gauges) and trade the crossovers, divergences and extremes those series produce.

Both toolkits rest on the same three premises, spelled out below.

The three premises

1. Prices move in trends

Once an uptrend, downtrend or sideways range establishes itself, it tends to persist until something shifts the supply-demand balance. Most technical entries are built around either following a trend that is already in motion or stepping in at the moments when a trend is exhausting and reversing.

2. Price discounts everything

Every piece of public information — earnings, macro data, sentiment, insider activity — gets reflected in the price the moment it's known. Reading the chart is therefore a shortcut to reading the collective interpretation of all that information by everyone trading the name right now.

3. History repeats itself

The patterns that show up in price are ultimately patterns in mass psychology: fear, greed, capitulation, euphoria. Because human reactions to similar setups recur with broadly similar shape, the same chart formations appear over and over across decades and across asset classes.

Caveats

Technical analysis is interpretive. Two careful analysts can look at the same chart and read it differently — most indicators have tunable parameters, multiple oscillators can disagree with each other, and every pattern admits exceptions. None of the tools listed in this section produce mechanical buy-or-sell answers; they produce conditional signals that have to be combined with context and risk management.

A related critique is that widespread use of certain technical signals creates a degree of self-fulfilling behaviour: enough participants watching the same 200-day moving average will, between them, defend or breach it more decisively than the underlying setup would predict in isolation. That dynamic cuts both ways — it makes the signals louder, but also more prone to crowded false breaks.