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What is Technical Analysis?

Key Conclusions

Technical analysis (TA) is a method that relies on historical prices and volume to forecast market trends.

Technical analysis (TA) can be performed with simple levels of support and resistance or with a combination of graphical indicators such as moving averages, RSI, MACD, and Bollinger Bands.

Trading signals can help us identify buying and selling opportunities, but TA indicators can also produce false signals, especially in lower time frames or in low liquidity markets.

It is important to perform risk management and cross-confirmation with other methods to reduce risks.

Introduction

Technical analysis (TA) is a charting method used to forecast price movements of assets by analyzing historical price and trading volume data. Unlike fundamental analysis (FA), which considers multiple factors surrounding the price of an asset, TA strictly focuses on historical price action and chart patterns. Traders use TA to identify trends, support and resistance levels, and potential entry and exit points for trades.

When was TA created?

While primitive forms of technical analysis appeared in Amsterdam in the 17th century and in Japan in the 18th century, modern TA often traces back to the work of Charles Dow.

A financial journalist and founder of The Wall Street Journal, Dow was one of the first to observe that individual assets and markets often move in trends that can be segmented and analyzed. His work later gave rise to Dow Theory, which fostered further developments in technical analysis.