Technical Analysis

Technical analysis is a technique that claims the ability to forecast the future direction of security prices through the study of past market data, mainly price and volume. In its purest form, technical analysis considers only the actual price and volume behavior of the market or instrument, on the assumption that price and volume are the two most relevant factors in determining the future direction and behavior of a particular stock or market. Technical analysts may employ models and trading rules based, for example, on price and volume transformations, such as the relative strength index, moving averages, regressions, various oscillators, inter-market and intra-market price correlations, cycles or, classically, through recognition of chart patterns.
However, there are also many stock traders who proclaim technical analysis not as a science for predicting the future but instead as a valuable tool to identify favorable trading opportunities and trends. The assumption is that all of the fundamental information and current market opinions are already reflected in the current price and when viewed in conjunction with past prices often reveals recurring price and volume patterns that provide clues to potential future price movement. In the foreign exchange markets, and commodity markets its use may be more widespread than fundamental analysis.