Technical analysis

"Technical analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends.".----  John J. Murphy, Technical Analysis of the Futures Markets (New York Institute of Finance, 1986), page 1.

Almost every trader uses some form of technical analysis. The building blocks of any technical analysis system include price charts, volume charts, and a host of other mathematical representations of market patterns and behaviors.

Technical analysis considers only the actual price behavior of the market or instrument, based on the premise that price reflects all relevant factors before an investor becomes aware of them through other channels.

Despite all the fancy and exotic tools it employs, technical analysis really just studies supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future. In other words, technical analysis attempts to understand the emotions in the market by studying the market itself, as opposed to its components.

Common Indicators used in Technical Analysis

Trend indicators :Describes persistence of price movement in one direction over time.

Strength indicators : Describes the intensity of market opinion with reference to a price by examining the market positions taken by various market participants.

Volatility indicators :Volatility is a general term used to describe the magnitude, or size, of day-to-day price fluctuations independent of their direction.

Cycle indicators :A cycle is a term to indicate repeating patterns of market movement, specific to recurrent events, such as seasons, elections, etc.

Support/resistance indicators : Support and resistance describes the price levels where markets repeatedly rise or fall and then reverse.

Momentum indicators : describe the speed at which prices move over a given time period.

Assumptions of Technical Analysis
1. Price discounts everything.
2. Prices usually always move in trends and
3. History repeats itself over time.

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