Technical Analysis

Financial Dictionary -> Investing -> Technical Analysis

Technical Analysis is a method of forecasting future short term trends in the stock market and other markets by using recent past data and assumed data such as price movement, past and current trends, historical patterns and volume, and by utilizing charts and other techniques. With the rise of the internet and computer software, a lot of technical analysis can be done automatically, even to the point of buying stock for you.

Although there are critics, as there is for every method, technical analysts claim that they can actually predict and forecast a stock's future price just by looking at past data and other variables associated with the stock. The main argument against them is that there are lots of outside and social factors that go in to determining a stock's price. Analysts counter this by believing that these outside social factors that alter a stock's price, have already happened, meaning price is the result of these factors so there is no need to look any deeper than past trends and prices.

Some of the main theories and strategies applied by analysts are that price always moves in a trend, so all they have to do is determine what the trend is from a list of past trends. They also apply the theory that once a trend is established, it will always follow through rather than go against the trend, so understanding the trend is all they need to do. They also agree that history tends to repeat itself, meaning a quick look at a graph can pinpoint where the market is headed.

The main opposition to technical analysis is fundamental analysis, which is a more widely followed set of ideas that looks at a lot more data and factors, not just in the short term, but sometimes years old.