Technical Analysis

Technical analysis rests on three core premises: price discounts everything (all known information is already reflected in the current price); prices move in trends; and history tends to repeat itself because human psychology drives recurring patterns. Rather than analysing a company's earnings or a country's economic output, technical traders focus entirely on the price chart.

The discipline divides broadly into three methodologies. Pattern analysis studies visual formations - head and shoulders, double tops, wedges, flags - that historically precede specific directional moves. Indicator analysis applies mathematical formulas to price (and sometimes volume) data: trend-following indicators such as moving averages identify the direction of momentum; oscillators such as RSI and MACD identify conditions where momentum is overstretched in either direction. Structure analysis identifies key price levels - support, resistance, pivot points - where buyers and sellers have previously contested price, making a reaction statistically more likely.

Critics argue that technical analysis is self-fulfilling (it works because enough traders act on the same signals) or a form of pattern-matching on random data. Proponents counter that price movements are driven by institutional order flow, and institutions use technical levels for execution. In practice, combining multiple technical signals - for example, a candlestick reversal pattern at a key Fibonacci level with an oversold RSI reading - produces more reliable signals than any single tool alone, and professional traders nearly always operate with a defined technical framework even when their primary edge is fundamental.