Technical analysis is the study of the behaviour of the market, using indicators, graphs and reports in order to best speculate on future trends of an asset price. The three basic assumptions in technical analysis are that: prices move in trends, history repeats itself and the price of an asset reflects its stability.
- Asset prices move in trends: this is the understanding that prices always move in certain trends depending on the circumstances that occur every moment in the market. Using technical analysis, you can define the trends and find the assets you wish to trade.
- History repeats itself: this is the belief that specific market trends reoccur repetitively. By examining and comparing the past behaviour of an asset, it can help you decide what to do with that asset depending on its historical movements.
- The price reflecting the overall stability of the asset: Many elements can affect the market and reflect in share prices. Supply and demand have a major affect causing asset prices to rise or fall. Using technical analysis, you examine the consequences, and not the factors which caused the change in price.