Technical Analysis

Introduction to Technical Analysis

Technical analysis at an elementary level has moved out of the exclusive domain of the professional investment analyst and into the armoury of the regular private investor.

It's worth recalling the three premises on which technical analysis is based.

Market Action Discounts Everything

All possible factors affecting the market price are actually reflected in the price. This means that a study of price action is all that is required to allow us to draw conclusions on the future direction of the market.

Prices Move in Trends

The purpose of technical analysis is to identify trends in the early stages of their development, enabling us to trade in the direction of these trends.

History Repeats Itself

The technical approach is aware of human psychology. Chart patterns, for example, reflect the bullish or bearish psychology of the market. Because human psychology tends not to change, we can assume these patterns will continue to work in the future. In other words, we can attempt to predict the future by studying the past.

The information contained in this case study is believed to be correct but cannot be guaranteed. Investors should be aware that the value of investments and the income derived from them can fall as well as rise, and past performance is not necessarily a guide to future performance. The information contained in this case study does not constitute a personal recommendation to deal in any particular shares. You should consult a personal advisor to discuss the suitability to your personal circumstances and investment objectives.